Now that the markets have settled down temporarily I thought it would be a good time to release the last of the tales that tie the inflation rate with the distribution rate. The tale is called
and the subtitle is How Much Stock Should Investors Hold? The reason I use the term required in the title is because given an inflation rate and a distribution rate if you want your money to last a certain period of time or grow to a certain amount—then you will require a certain rate of return or you will fall short of your goal. There is no escaping this fact. I picked the subtitle because there is a tendency for investors to fall into a behavioral trap where they falsely believe they can avoid owning stocks or incurring risk while making high rates of return. You can’t. You can’t make stock market returns for bond level risk. The Federal Reserve is shouting it from the mountains by keeping rates as low as they are today. They are effectively saying the following:
Go ahead and keep your money invested “safely” at less than 1% per year. But if you do, we are going to scalp you to the tune of 2-4% per year on your “safe” investments and lower the Federal Debt as a percent of GNP on the backs of those of you that are savers and risk averse. We’ve done it before and will do it again since most of you don’t understand inflation and how to balance risk vs. reward.