Morningstar Minute: Inflation, Not Rising Rates, a Concern
Near-term inflation expectations are low, but fixed-income investors cannot overlook the negative impact inflation has on long-run returns.
Near-term inflation expectations are low, but fixed-income investors cannot overlook the negative impact inflation has on long-run returns.
The Morningstar Minute is our quick take on investments, the market, economic indicators, and more. Join us every day for fresh insights from our analyst team.
Tim Strauts: Bond investors today are very concerned about rising rates, but what they should really be concerned about is inflation.
As you can see in the chart here, we look at the total returns of investment-grade government bonds, which are five-year Treasuries, from 1926 to today. And $1 invested in 1926 grew to $93 today. Now, if you adjust that for inflation, that $1 would have only grown to $7, which is a pretty amazing difference in returns.
Now, in the second chart, you can see we highlighted a period of very high inflation, the 1970s, so from 1970 to 1980. And if you look at the returns of the government bond index, you would've actually had over a 100% return over that 10-year period. But when you adjust the returns for inflation, you would have actually lost money.
As you can see, inflation is obviously a very important factor to look at, and we're only seeing expected inflation of 1.5% to 2% for the foreseeable future. But investors should really keep an eye on this over the long term.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals
and individual investors. These products and services are usually sold through
license agreements or subscriptions. Our investment management business generates
asset-based fees, which are calculated as a percentage of assets under management.
We also sell both admissions and sponsorship packages for our investment conferences
and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.