So it's more complex than that. So maybe we'll, let's just start with that. And this is prompted by really a reporter question asking me to sit for an interview talking about inflation. And it's a really simple question, if you think about this. Is inflation good or bad for the stock market? And I thought, wow, that's such a simple question. Do we really, do we really want to do an interview about it? And then as I thought about it for a second, I thought, well, wait a minute. It is pretty nuanced. There's not just a super easy answer. But I'll start with the super easy answer is that we want Goldilocks inflation. If you can imagine that we're in a nice, not too hot, not too cold zone, 0 to 2%. Closer to 2%. That's the zone the stock market seems to like the most, at least historically, if you go back over the last 50 years, and that's where we see the best performance, if we get to a point where we have lower inflation than that. The reason that inflation and usually interest rates would be super low is, is that the economy's starting to have a little bit of a problem. So even though it's not necessarily a bad environment, for another couple of reasons, that's a different rate of return than we found. When inflation is sub 2%, then it's pretty clear if we go from the 2 to 4% zone, returns come down. We go to the 4% plus zone as far as inflation, then returns come down even further. So we'll go through this number. So, first of all, there is no one variable that impacts how the market does. In fact, it's even more nuanced than that. It is really the question goes to what kind of stocks do well when inflation's high? What kind of stocks do well when invasion is low? So there's really two layers of that. So I'll start by just saying there are all sorts of variables that are determining whether stocks do well or not. Valuations, earnings really is what drives equity prices higher over time if earnings are growing. So there's. There's valuation, there's how the economy's doing, there's interest rates. So there are so many layers of variables in order to figure out this question. But if we were to isolate and just say, well, let's just look at different inflation regimes, different inflation environments over the past 50 years, and see how stocks do just in general, the s and P500, before we break it into different categories. And here are the numbers. If you look at when inflation is greater than 4%, so that's getting pretty high. It's high. And obviously we've seen, if you go back to 2021, 2022, we saw 8, 9% inflation in that zone. Rates of return on average are in the 6% range, which, again, not great relative to stock market history. So it's pretty clear that really high inflation just isn't great for stocks. So that's the first answer. If you go to a moderately high zone, 2% to 4% inflation over time, stocks average a little less than, just a little bit less than the overall market return at about 10%. But the sweet spot or the Goldilocks zone, inflation, not too hot and not too low or too cool. That's when you get 14.2% average rates of return. So that's Better than market history. That's the zone that the stock market really likes some inflation, not too much inflation. But we also don't want less than zero, which we've also had some periods of time where we've seen a little bit of deflation. Now, there's not a ton of data for that. So even though average rates of return for the stock market, when we have inflation less than zero over the past 50 years, there's not a ton of data on that because it's a pretty rare event. But you see a 13% average rate of return. I wouldn't put too much stock in that, in that data because it's just a really small sample set. It's really just there's only a couple of months even where we saw inflation less than zero. So that's the larger answer to the question, which is we want to see for the broad market, if you're an investor, you want a little bit of inflation. Not too much, not too hot, not too cold. That's the Goldilocks inflation zone. If we dig a little bit deeper, and we've done a lot of research on this over the last several years, and if you go back to 1960, Krista, and we're going looking at a lot of history here, that corollary really holds true of how I just talked about this. And if you go to the 1960-72 period of time in America, we had a Goldilocks inflation environment. Inflation averaged 2.9%. I mean, that's kind of relatively in check and low. And stocks did pretty well about 9% a year. Dividend stocks did about 12. Growth. Growth stocks did about 9. So there's not a huge disparity between the two. But then you get into these extreme periods, and I would call the 1973-1982 period, that's an extreme right hyperinflation. Inflation averaged 9% a year. Nine for that long stretch of time. That was a very different environment. Dividend stocks did pretty well. They averaged about 11% a year. And growth stocks, as an example, think of today, what would be a dividend stock. Think of a utility company, a bank, an industrial company that pays dividends. They're growing, but not extremely fast. Growth company. Think of the big technology companies that don't really pay dividends, but they're trying to grow at 20, 25% a year. That's a growth company that growth companies did really poorly during that period of time, just barely above the flat line, averaging only 2% a year. So it also stands to Reason that you can think of really high inflationary environments good or better for still not great for anybody, but better for dividend paying companies. Really low inflationary environments very good for growth oriented companies. If we have low inflation, we probably have low interest rates. So investors are more willing to say, well, I can't get much sitting my money in cash savings. Yeah, I'm going to go ahead and invest in a company that may have good returns but way out into the future. So that's when the market pendulum swings toward growth stocks and we have really low inflation and lower interest rates. The takeaway for investors, we're in the Goldilocks zone right now. We're not quite at the 2% level, but we're under 3% for inflation. And that's still a pretty decent environment in general for stock market.
Wes Moss (17:38)
I love a chart. I love a table. So I don't blame you for looking at these things. They are at least somewhat helpful. Totally get it. But I would scrap that chart completely. Just throw that chart out. And it's nothing against who publishes it, because most financial firms publish the same chart. It's just math, but it's confusing. It's particularly if you've got a big age gap between you and your spouse. It's your age. It's your income. It is the age of your spouse, your age. So that could be different depending on what your income is. Maybe your income is artificially low right now. Maybe it's artificially high right now. Does that really matter? What matters is what you need to spend in retirement. Retirement. So this is a generic benchmarking system to make people feel guilty. So I would just scrap it. Just don't even look at that. Remember, financial planning is about making the complicated simple. And that chart kind of makes it even more complicated. Here's how you make it simple. Just use the 25x rule and think less about what you're earning today and what you're going to need to spend in retirement. And if you do some quick math here, and I'm going to just use the financial calculator. If you've got $250,000 and you average 6% a year, and let's say you are 37, so 25 years, you'd be 62 at a 6% rate of return. If you're saving 15k a year, and this is compounding on top of the 250 you already have, well, you really have 300. But let's just do 250 for the next 25 years. Just mathematically, that comes out to 1.9 million. And if you're using the 25x rule, think of it this way. If you need 50k times 25, that equals a million and a quarter, right? That means that you could. If you've got Social Security and you may have a pension, and I would think putting all that together is 50. If you have 1 million and a quarter again, $50,000 times 25 is 1.25. That's the 25x rule. You would have another $50,000 on top of that. So then you have $100,000 per year in retirement. That can escalate higher for inflation. That's how I would be looking at this. And not a complicated chart. I'd be looking at just making sure that you've got your million and a quarter. And by my math here, you would have almost $2 million if you're saving a little over 15. And that's early, it's at age 62. So now you've got 2.
Wes Moss (28:54)
But here's the. I would think the good news, because let's get a dose of reality into this. And there's a big difference between saving your way to the American dream and then investing your way to the American dream. And if you do the numbers, because the biggest chunk of this is retirement savings, if you're just saving your way and you're going to put away $1.6 million, assuming no rate of return, which that's probably artificially low as well, then by my math, you need to make 100. You have to average 160k a year. But if you were to save every year and invest those dollars in order to get to 1.6 million by the time you're done your 45 years, it's not nearly as much having to be socked away as you might think. By my math, you would have to earn about 480,000, which would net to about 338,000 over that period of Time. And if that compounded at 6% over time, then where do you end up? Well, you still end up with the 1.6 million because the net 308, call it 340 grand, which would be 7,500 bucks a year or 650 bucks a month growing at 6% a year. Then you get to that number, you get to the $1.6 million in savings. And to me that's the biggest cost of this whole equation. Now if you do the math on that, you end up with having to earn about 119, let's call it $120,000 a year. So saving your way to the American dream, and this is trying to put it into perspective for all of us, like what does it really mean? Over 45 years you'd need to earn about 160k gross. If you invest your way to the American dream, that number drops all the way down to $120,000. So 6% for 45 years, 7,500 bucks a month or $7,500 a year. $650 a month gets you to the 1.6 million. Yep. So I again, I don't really. It's expensive. It is a lot of earnings over a 45 year career. 7 million, depending on your tax rate. It could be 6 million if you're a lower tax rate to net down to the five that they're saying in this study. And I don't think it's that far off. And it's a big mountain to climb.
Wes Moss (33:45)
Joe, you could ask 10 people on this and maybe get 10 different answers. In large part, insurance has done its job. Meaning that you. We want to. We want insurance. We want to pay for insurance, but we obviously don't want to have to use it. And that's why we do lower cost term policies. And then hopefully you've just wasted all your premiums and everyone is now financially independent. You're financially independent for retirement. The kids are out of the house and you don't need the insurance anymore, so you can stop paying it. You are not, in my opinion, you're not quite there. So it makes sense to say, well, I don't really need this anymore. I can go ahead and drop it. But if you were to just start today, is it a good deal to have $200,000 that would come to your wife if you Pass today for $1,900 a year? In my opinion, that's still a low amount of money to protect that much. That would add that much in assets because remember, if something happens to you, your wife will go down to just one Social Security payment, not two. You won't have both of you together for retirement. So I think that, I know you're 58, so you're getting close to the point where I think you could think about giving this up. But you're a little, in my opinion, you're a little far away from that. And I would continue to do the $1,900 for the 200,000. Remember, it's insurance. It's in case of something really bad happens that you don't expect. Sure. You could invest the $1,900 over the next, call it five years. Is that really going to get you anywhere close to. If something were to happen in three or five years and you pass, it doesn't come close to the 200,000. So my opinion, even though you've got $2 million between your 300 and your 1.7 in, in real estate and you're, you're technically, you're pretty much funded when it comes to retirement, I would keep, I would not be getting rid of that insurance policy today. That's just my opinion on it.
