Real vs Nominal

The S&P500 reached a new high yesterday although it gave back some of those gains before the end of the session and the week. It’s now 14.4% YTD, coming strong from the liberation day dip. As you can see in the chart below, since 2020, the S&P has basically doubled your money (101.80%) in nominal terms. But those returns are measured in dollars. When we express those returns in terms of gold, the index has lost 18.22% in real terms. You can also see the impact of the calculation expressed in terms of Bitcoin. It’s even worse. Here’s the catch: the Compounded Annual Growth Rate (CAGR) of the Fed’s Balance sheet has been 12% since 2008 till today. The S&P500 CAGR on the same period has been 11.2%. On other words, if you have been invested in an ETF for the last 17 years, you have lost money in real terms. Imagine if you have been invested in bonds or international stocks. Equity markets need to grow at 12% annualized rate to cope with the loss in value of the dollar, thanks to the debasement created by money printing. If the Fed were to lower rates AND print more money (QE) instead of QT, equities would need to go up even more just to breakeven. Do you incorporate these facts when designing your asset allocation?

Want to know more? You can find all our posts at https://www.myfundamental.net/insights

#iamfundamental #soyfundamental #wealthmanagement #familyoffice #financialadvisor #financialplanning #policymistake #ratecut #stagflation