What’s worse, market volatility or inflation?

Inflation means rising prices, which erodes purchasing power over time. For example, what a dollar could buy in 1971 could only buy 21 cents of goods in 2002. That 79% drop in purchasing power is almost as bad as the 84% drop in stock prices in the worst market crash in US history, during the Great Depression. Or is inflation worse? Since inflation doesn’t have a reward, but the stock market has always recovered after downturns, that suggests that inflation is often a worse risk in the long run. Market volatility, however, gets much more attention in the media, while inflation often goes less noticed, as a “silent enemy.” When you are younger and have a longer time frame before you need to spend your retirement money, there is more time to reap the benefits of investing, despite some volatility along the way. As you get closer to and into retirement, it generally makes sense to decrease your stock holdings and increase your bond holdings, to decrease volatility. Be smart when choosing your risks. WealthStep’s advice engine will help you determine appropriate investments for each life stage.