How Well Do Stocks Keep Up With Inflation?

growingIf you are worried about future inflation, what’s the best investment?

For years, experts have argued that stocks are the best investment to keep up with inflation.  Their prices grow over time, making you wealthier, plus they increase their dividends year-after-year, so your income stream grows as fast or faster than your spending needs.

But does this theory stand the test of time?

The Wall Street Journal CFO’s Journal pulled together data from the 1960s to today to see how well stocks stood up to rising prices.

Here’s what they found:

Dividends have grown consistently over time

“Since the end of 1957, when the S&P 500 was created, total dividends per share among the companies in the index have grown 50 out of 56 calendar years.”

That means that almost 90% of the time, the income you received from your stock portfolio would be higher than the year before. That’s important for investors concerned about rising prices.

 Dividends have grown faster than inflation

In each decade, from the 1960s through our current decade, dividends have grown at least twice as fast as inflation.

That’s true even in the high inflation decades of the 1970s and 1980s, when prices rose well over 10% in many years.

What does this mean for you? Stocks not only let you keep up with inflation (and maintain your current standard of living); they help improve your standard of living by increasing your purchasing power faster than price hikes over time.

Since 2010, dividends have grown much faster than inflation

While in prior decades, dividends grew about twice as fast as inflation, since 2010 they’ve grown almost eight times as fast as inflation.

In part, that’s because inflation has been particularly low in recent years.

What’s the impact? People who have been invested in the stock market since 2010 have dramatically improved their wealth and purchasing power. Those who got out, and stayed out, after the 2008 recession, have stagnated.

By investing in stocks (and staying invested through ups-and-downs), your income would now be way ahead of inflation

In 1960, the S&P 500 index paid dividends of $1.98 per share.  By 1970, dividends had grown to $3.19 per share.

Now, they’re over $36 per share, providing growth of over 1,700%.

Take that, inflation.


About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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