Personal Wealth Management / Expert Commentary

Fisher Investments' Founder Discusses Inflation and Where We Go From Here?

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher shares his thoughts on inflation. While rising inflation is painful and can materially affect people’s livelihoods, Ken points out that, historically, inflation acts as a positive force for stock prices in the long term as corporations find ways to adjust their cost structure or pass on prices to consumers. Ken cautions there can be mismatches in the short term—when inflation goes up while stocks go down—like in the first half of 2022.

Moreover, Ken explains that stocks tend to do well in periods of low inflation, as well as in the periods of high inflation—a rare feat for most asset classes. According to Ken, other investment categories tend to do well in just one of the two scenarios. Bonds and cash, for example, do fine in the former scenario, while real estate and precious metals can outperform during high inflationary periods. Finally, Ken points out that in the long term, stocks have higher returns and lower volatility than bonds, which tend to suffer during inflationary periods.

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Title screen appears, “Fisher Investments' Founder Discusses Inflation and Where We Go From Here?”

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Ken Fisher doing hand gestures time to time explaining.

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Ken Fisher: You people ask my thoughts on inflation, I like inflation.

Not as much as I regularly like coming out of the woods and finding out I've got four or five ticks sucking my blood, But I like inflation.

Let me just put that into perspective.

Ken Fisher: Most people don't like inflation.

It's easy to understand why.

The fact is, in the long

term, if you're an equity investor, inflation gets built into the long-term pricing.

In the short term, we can have mismatches where stocks

go down as inflation is going up, which is what we've had this year, in the long term, equity prices

build that inflation back into the stocks.

It's just a matter of how long

does it take to get there.

Sometimes longer, sometimes shorter.

If you're pessimistic, it's easy

to focus on the longer.

On the other hand, the fact of

this is a ripple into investment alternatives.

Ken Fisher: If inflation is to stay with us, which is an if, in a material way, then it is also true that the categories that do well in longer term inflation are very different than the categories that do well in periods of low inflation to disinflation.

And that makes sense to you.

In low inflation to disinflation.

Bonds do well.

Cash can do fine.

Equity typically does well.

But in actual real periods of sustained inflation, you typically see real estate do well, gold do well, other precious metals do well.

But you also see the stock market

doing well in the longer term.

And as somebody whose life has been heavily focused on stock-oriented features, that's actually not a bad thing.

Ken Fisher: I understand the pain and the ugly that people feel right now tied to inflation they did not anticipate and they have my empathy, particularly those that are living off of fixed income, particularly those that are on income limited jobs where it bites into their life.

And I empathize with all those people.

Let me point out, however, that one of the normal trade-offs that has been less of a trade-off this year than most years has been stocks versus bonds.

Ken Fisher: Bonds are regularly thought of as less risky than stocks because they're less volatile than stocks in the short term.

That's true. In the long term

however, given enough time and looking at rolling periods, stocks are actually less volatile than bonds, have higher returns.

Issue is to think of them not in

short term volatility, but in longer term.

And when we do that, you actually see that these inflationary periods which eat steadily into bond prices

with time, benefit stocks, not necessarily in the short term and not necessarily immediately, but therefore a lot of that force that otherwise wants to go into

bonds ends up going to stocks.

So in reality, while inflation is ugly now and those that suffer from it have my empathy, the fact is,

in the longer term this is a positive force for equities because equity prices absorb that and the inflation gets built into their pricing with time.

Thank you very much for listening to me.

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A Series of disclosures appears on screen: “Investing is Securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice or a reflection of the performance of fisher investment or its clients. Nothing herein is intended to be a recommendation or a forecast of market conditions. Rather it is intended to illustrate a point. Current and future markets may differ significantly from those illustrated here. Not all past forecasts were, nor future forecasts may be, as accurate as those predicted herein.

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