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“Back to the Future” – The Return of Inflation

In 1985 the movie “Back to the Future” was released. As Wikipedia explains “Set in 1985, the story follows Marty McFly (Fox), a teenager accidentally sent back to 1955 in a time-traveling DeLorean automobile built by his eccentric scientist friend Doctor Emmett "Doc" Brown (Lloyd). Trapped in the past, Marty inadvertently prevents his future parents' meeting—threatening his very existence—and is forced to reconcile the pair and somehow get back to the future.” It's now 35 years later and I can’t help but wonder if we aren’t facing another crisis that could use some time-traveling help. You see, it’s been nearly that long since investors had to face down the terrible financial menace called inflation.

Why is Inflation Bad?

Inflation always has been and always will be the single greatest threat to a secure retirement. Why? Because inflation destroys purchasing power.

We often talk about how much “money” someone has, but what really matters is how much stuff that person’s money can buy. If the price of stuff keeps going up, while the number of dollars in your bank account stays the same, you won’t be able to buy as much stuff. In retirement, most of the stuff we buy is pretty darned important…housing, health care, groceries, gas, utilities, etc. These aren’t frivolous purchases; the cost of that stuff can greatly impact the quality of one’s retirement years.

To put the inflation issue into real terms, consider these figures:

  • A basket of groceries that would have cost $100 in 1985 will set you back $247 today.
  • Gas was $1.12/gallon in 1985. You could mail a letter for 20 cents.
  • The median home in the US sold for $82,500 in 1985. Today it will cost you $330,800.

Imagine how much these same things will cost in another 35 years.

What Causes Inflation?

Inflation can be defined as too much money chasing too few goods. Two major factors are at work today that are driving inflation higher:

  1. Too much money circulating in the economy. According to Investopedia “In 2020, the M2 supply went from $15.51 trillion in February right before the COVID-19 pandemic really took hold, to $18.45 trillion in August, well into the pandemic, a jump of nearly 19 percent. The increase reflected the tough economic period and the Federal Reserve's actions to cut interest rates to near historic lows and increase the money supply overall.” Record ow interest rates, combined with unprecedented direct stimulus payments from government to individuals, has made borrowing cheap and encouraged loose spending.
  2. Shortage of goods. Materials shortages are showing up everywhere. Building lumber is scarce, appliances are on six-month backorder and auto assembly plants are shutting down from lack of computer chips. Housing offers a particularly troubling example. The spread of COVID-19 combined with a shift to remote working has caused skyrocketing demand for suburban single-family homes. At the same time, homebuilders failed to anticipate this shift, leaving a shortage of home inventory. Nationwide there is less than 2 months’ supply available, the lowest amount since recordkeeping began in 1999. We now regularly hear of homes selling in three days, with multiple offers above asking price and buyers waiving inspections.

What is the Outlook for Inflation?

Already happening, and about to get worse. Since 2005 inflation has averaged 1.8%, significantly below the longer-term average of 3.1%. On Tuesday, the Labor Department reported that inflation for March was 2.6% and was showing strong signs of growing. Most shoppers will tell you, however, that the Labor Department statistics greatly understate the rising prices they see in stores, indicating actual inflation may be higher than reported by the government. People have pent up demand from COVID, they’re receiving stimulus checks and they are eager to get out and spend. Prices have nowhere to go but up.

What Should Investors Do About Inflation?

First, understand how this affects your portfolio. As noted above, “money” really means “purchasing power”. Currency (i.e., that green stuff in your wallet or that dollar amount on your bank statement) is NOT money. Why? Because it cannot outgrow inflation and taxes. It is a wasting asset that loses value (purchasing power) over time. In rising inflation environments like we are in now, currency loses value even faster than normal.

Second, commit to the idea that a successful long-term investing program must seek to preserve and, if possible, grow one’s purchasing power. This means selecting a portfolio whose long-term returns grow faster than the rate of inflation. Continued growth above inflation, combined with a reasonable withdrawal rate in retirement, results in preservation of wealth.

Third, look at the facts:




Real Return









Corporate bonds






Large company stocks






Small company stocks












You can see more on this topic at our YouTube page.

Assuming a retiree wishes to withdraw 5% to live on while also growing purchasing power, it’s clear only stocks allow for this.

Great Scott! What Can I Do?

While we don’t have a time-traveling DeLorean that goes 88mph, we can help. When we build retiree portfolios at Oxford, we seek a balance between Stability and Growth following the principles outlined in our proprietary Power of 5 Investing system. Our goal is to help clients achieve inflation-beating growth in their wealth, while managing through market downturns. Our system has been battle tested in 25+ years of market ups and downs and is ready to tackle inflation. If you or someone you know would like to learn more, contact us today for a free get acquainted meeting.