Ryan Litfin Reflects on Current Inflation Woes in Stock Market
As recent stock market highs excite industry professionals, many analysts are raising concern over the matter of inflation. For Ryan Litfin, this is a factor all investors must take into account to view portfolios realistically.
PHILADELPHIA, PA, June 18, 2013
As a co-host on a popular talk radio program, investment professional Ryan Litfin is always encouraging investors to stay informed about all market conditions to build well-balanced portfolios. Although many have started to celebrate new highs in the stock market, Litfin explains that today's investors must pay attention to inflation rates and how this impacts actual returns. Litfin points to a recent Wall Street Journal article that indicates some "stock market bulls" are not taking inflation into account when assessing prospective gains.The Wall Street Journal reveals, "Stock market bulls face an inconvenient truth as they celebrate the stock market's new all-time highs. Inflation. It turns out that, when you take inflation into account, the stock market is not at an all-time high. It's not even close. No wonder the bulls are in denial."
Citing specific evidence, the article states, "Consider the data, courtesy of data compiled by Yale University finance professor Robert Shiller. In inflation-adjusted terms, the S&P 500 SPX -0.34 percent hit its all-time high in early 2000, at the top of the Internet bubble. If we were to denominate that index's level in today's dollars, the S&P before the bubble burst would have been above 2,000--24 percent higher than where it stands today. To be sure, dividends soften this blow--but only partially. Even with dividends re-invested, the inflation-adjusted S&P 500 index today is below its early-2000 peak."
In response, Ryan Litfin explains, "While much of the news is talking about stock market levels hitting historic highs, what many fail to address is how inflation is not factored in to those levels. I believe too many investors fail to recognize inflation and factor it in to their portfolios. Many fail to recognize or acknowledge it simply because it depresses the 'high' they may be feeling after somewhat recovering from the deep losses many incurred in their portfolios through the last financial crisis."
Although he notes that those in the industry may prove able to easily identify these factors, Litfin explains that independent investors must also know how to calculate earnings accurately. In order to help investors make better estimations of return, The Wall Street Journal poses one solution Litfin believes is worth noting--the cyclically adjusted p/e ratio, or CAPE. In comparison with the traditional ratio, the article explains, "This modified version, known as the cyclically adjusted p/e ratio...divides the S&P 500's level by average inflation-adjusted earnings over the trailing 10 years. [It is] reported that the CAPE had an impressive track record in forecasting the stock market's return over the subsequent 10 years."
However, while CAPE can prove useful, Litfin state that it is important to realize that it is simply 10-year estimation; as the article reveals, it does not mean that the market will continue to decline in the course of the next decade. To get a better picture of how inflation is really impacting individual portfolios, Ryan Litfin encourages all investors to speak with a trusted advisor about the matter to obtain a realistic outlook.
ABOUT:
Ryan Litfin is a respected finance industry professional who currently serves clients as a private equity advisor and asset manager. With previous experience in financial services and international commerce, Litfin remains dedicated to helping individuals understand ways to simplify investing methods and enhance fiscal literacy. Since 2010, Ryan Litfin has worked to inform the public on current economic matters as a co-host of the popular talk radio program.