Beating Inflation: A Historical Look at Stock Returns

Inflation can erode the purchasing power of your investments, but historical data shows that investing in stocks has the potential to keep pace with rising prices. Join me on a journey through history as we explore the real returns of U.S. equities and learn about strategies to beat inflation.

Holding Up Against Inflation: The Real Returns of Stocks

Explore how stocks have historically managed to outpace inflation and protect the purchasing power of investors.

When it comes to preserving the value of your investments, stocks have shown themselves to be resilient against the pressures of inflation. Over the past few decades, historical data reveals that stocks have not only kept up with rising prices but also delivered positive real returns.

In fact, even during years with high inflation, such as 2021, the stock market still maintained strong positive returns after accounting for the impact of inflation. Out of the past 30 years, 23 witnessed positive real returns for U.S. stocks.

This sustained positive performance is notable considering the variety of market environments, including periods of double-digit inflation and even deflation, captured in the long-term data.

Broadening the Lens: Stocks Beyond the United States

Discover the benefits of a globally diversified stock portfolio in mitigating the impact of inflation and accessing higher potential returns.

While U.S. stocks have demonstrated their ability to outpace inflation, the story extends beyond domestic markets. Developed markets outside the United States and emerging markets have also shown strong inflation-adjusted returns over the long term.

In a 2021 paper titled 'U.S. Inflation and Global Asset Returns,' researchers highlighted that developed ex-U.S. and emerging-market equities delivered positive inflation-adjusted returns on average from 1991 to 2020.

This highlights the power of global diversification and verifies how investing in stocks in various regions can help mitigate the impact of inflation while still offering the potential for positive real returns.

Beyond Average: Delving into Different Stock Categories

Uncover the potential benefits of including specific types of stocks, such as small-cap value equities, in your investment strategy.

While the overall average real return of the S&P 500 Index has proven to be a reliable inflation-beating measure, there is also room for further optimization in your investment portfolio by focusing on specific stock categories.

By categorizing U.S. stocks into style groups based on market capitalization and relative price, insights emerge. For instance, small-cap value stocks have achieved an average annual return after inflation of 15.0% since 1926. In comparison, large-cap growth stocks yielded an average annual return of 8.4% during the same period.

These statistics illustrate the potential benefits of including small-cap value stocks in your investment portfolio strategy, enhancing your chances of exceeding inflation and achieving long-term financial goals.

Assessing the Validity of Inflation Hedge Assets

Understand the complexities of finding reliable inflation hedge assets and whether highly volatile options effectively reduce purchasing power risk.

One popular strategy to combat inflation is investing in assets that are considered inflation hedges. However, it's important to assess the reliability of these assets.

In our research, we find that correlations between the nominal returns of a broad range of securities and unexpected inflation are not very robust. While there are some exceptions, such as energy stocks and commodities, the nominal returns of these assets have exhibited significant volatility and their variation is often unrelated to inflation.

It is crucial to question the effectiveness of highly volatile investments in reducing the variability of future purchasing power, considering the fluctuations experienced and the massive difference between annual nominal returns to energy stocks, commodities, and inflation.

Stock Strategies that Beat Inflation: Conclusion

Final thoughts on the historical performance of stocks against inflation and strategies to better navigate rising prices in your investment journey.

Throughout history, stocks have exhibited resilience and the ability to outpace inflation, offering investors peace of mind in times of rising prices. The data shows that staying the course with a balanced portfolio anchored in stocks can help protect long-term purchasing power.

For those seeking additional returns, the inclusion of stocks known to have higher expected returns—such as small-cap value stocks—can further enhance the chances of keeping up with or beating inflation. Diversifying globally and focusing on sources of higher expected returns provides investors with a well-rounded strategy to combat inflation's impact.

Remember, the path to beating inflation requires a long-term perspective and disciplined approach. By understanding historical patterns, diversifying across markets, and focusing on specific stock categories, you can tilt the odds in your favor and increase the likelihood of financial success.


Stocks have historically demonstrated their ability to outpace inflation and protect the purchasing power of investors. Over the years, they have delivered positive real returns, even during periods of high inflation. By building a well-diversified, globally-oriented portfolio and considering stocks with higher expected returns, investors can increase their chances of beating inflation and achieving their long-term financial goals.


What is the average real return of U.S. stocks?

The average annual real return of the S&P 500 Index from 1993 to 2022 was 8.5%. Over the longer term, going back to 1926, the average annual inflation-adjusted return for the index was 8.7%.

Are stocks outside the United States also effective in beating inflation?

Yes, developed ex-U.S. and emerging-market equities have demonstrated positive inflation-adjusted returns on average from 1991 to 2020, showcasing the benefits of a globally diversified stock portfolio in mitigating the impact of inflation.

Can specific types of stocks outperform the average returns?

Yes, categorizing stocks based on market capitalization and relative price reveals that small-cap value stocks have had an average annual return of 15.0% after inflation, outperforming large-cap growth stocks over the same period.

Are assets labeled as inflation hedges reliable?

While some assets, such as energy stocks and commodities, may have a certain degree of correlation with unexpected inflation, their nominal returns have proven to be volatile and often unrelated to inflation. It is important to consider the efficacy of highly volatile investments as a means to reduce purchasing power risk.

What is the key strategy to beat inflation with stocks?

The key strategy is to adopt a long-term perspective, stay disciplined, and build a well-rounded portfolio anchored in stocks. Diversify globally, focus on sources of higher expected returns, and consider incorporating small-cap value stocks to bolster your portfolio against the impact of inflation.

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