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Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today’s Issue Read Time: <2 minutes

• Lesson: Inflation and investing
• Timeless Content: A set-it-and-forget-it investing strategy
• Thread: Inflation and investing (see a theme?)
• Resource: How is “inflation” measured?
• And more!

Friends,

If you’re plugged into financial media, you’ve seen that the inflation rate is finally coming down. A lot of noise has been made about inflation over the past three years, so we wanted to take a second to talk about how long-term investors should think about the phenomenon.

On one hand, inflation has had an enormous effect on returns within our portfolios. All three of us were down over 50% in 2022. It was incredibly painful. Inflation played a key role:

• Companies: When inflation was low, interest rates were low. Many young, publicly-traded, unprofitable businesses (think: Carvana) could borrow money and pay zero interest on those loans. They could delay the date by which they had to be profitable. When rates rose, that lack of profitability became a liability.
• Stocks: When inflation was low, investors couldn’t get much return in bonds or money-market accounts. That forced them into the stock market. But when borrowing rates rose in response to inflation, investors could suddenly get 5% returns with zero risk in CDs. That drew a lot of money out of the stock market.

On the other hand, all of this occurred within a span of “just” three years. It has felt like a lifetime — but it’s worth noting that for long-term investors, it’s but a blip on the radar screen.

Over the past 100 years, we’ve had times of 10%+ inflation and we’ve had times of deflation. And yet, through it all, the market has continually averaged over 10% annual returns. It certainly was not a smooth ride.

But those who simply accept that they’ll suffer from — and benefit from — changes in the inflation rate (and thus, the Federal funds rate) over time, can likely ignore the noise.

Yes, valuation still matters. And yes, as you get closer to retirement, the effect inflation can have on your portfolio becomes more important. But by and large, if you just focus on buying mission-driven, wide-moat companies and acceptable valuations, you’ll achieve your financial goals — no matter the inflation rate.

Wishing you investing success,

Brian Feroldi, Brian Stoffel, & Brian Withers Long Term Mindset

P.S. Join us on Thursday, Aug 29th at 12:00 EDT for a FREE investing masterclass: 5 Moats Every Investor Must Know. To RSVP instantly, click here.

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One piece of timeless content

We love investing in individual stocks, but that’s not everyone’s “thing.” The team over at Market Sentiment “are not stock pickers and consider asset allocation more important than asset selection.” In their recent blog post, “Simple Portfolio #1: 3 Fund Portfolio” they lay out a super simple (and effective) strategy for a set-it-and-forget investing plan.

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One thread

10-K Diver @10kdiver 1/ Get a cup of coffee. In this thread, I’ll help you understand the relationships between *investing* and *inflation*. 12:47 PM • Nov 28, 2020 434 Retweets 2390 Likes Read 68 replies

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One resource

Inflation is measured using the CPI, or Consumer Price Index. But what is it, and what does it actually measure? This Investopedia article serves as a great overview, including how CPI is calculated, why it matters, and its criticisms.

Note: If you’ve consumed some great investing content recently, we’d love to hear about it! Reply to this email with the link, and we consider it for a future newsletter with a shout-out to you!

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