

Freakonomics: The Quiet Danger of Non-Inflation-Adjusted Stock Returns - cwan
http://freakonomics.blogs.nytimes.com/2009/12/28/the-quiet-danger-of-non-inflation-adjusted-stock-returns/

======
jakarta
Warren Buffett: How Inflation Swindles the Investor and other writings:
<http://www.scribd.com/doc/16593184/Buffett-Inflation-File>

------
azgolfer
'De-listed' stocks are another factor - the worst performing stocks are
removed from the exchange, giving a higher average. Inflation itself is a very
tricky thing - technology is very deflationary but this is ignored by the
market basket.

~~~
roundsquare
It depends what you are using the index for.

If you investing in a mutual fund that is replicating the S&P 500, for
example, it doesn't really matter except for transaction costs.

If you are using the S&P 500 as your baseline (e.g. to decide if an investment
strategy is worth the effort) it doesn't matter at all.

If you are using the S&P 500 as a metric about the economy... it might matter.
If there is frequent turnover in the composition it might indicate that the
market is very volatile... (someone with more knowledge can probably tell me
if this is true or not).

------
ars
To read the WallStreet article:
[http://www.google.com/search?q=Adjusted+for+Inflation,+Dows+...](http://www.google.com/search?q=Adjusted+for+Inflation,+Dows+Gains+Are+Puny)

~~~
cloudkj
The article makes a good point: despite the "masked" non-adjusted returns, you
don't really have an alternative to equities over the long haul.

From the linked WSJ article: "All of this might be enough to put investors off
stocks entirely, until they consider the long-term alternatives. Measured over
the 1978-2008 period, rather than over just one decade, stock performance in
real-real terms actually is better than that of just about any other major
investment class, Mr. Thornburg found: 4.5% a year. Stocks' ability to keep up
with inflation over the very long haul may be their best selling point.

In real-real terms, stocks did better over that period than municipal bonds
(2.5% a year), long-term government bonds (2% a year) and corporate bonds
(0.2% a year). Real-real home prices were unchanged over those 30 years. Both
short-term government bonds and commodities suffered losses. (Mr. Thornburg
has experience investing in all these areas, although his mortgage affiliate
went bust in last year's housing collapse.)"

~~~
EugeneG
I wonder what is the actual "rationale" for investors receiving profits for
holding equities -- why should an equity holder, on average, be compensated
(in the form of higher returns) for holding a stock?

------
3pt14159
This is why there should not be a capital gains tax. Inflation + capital gains
tax = a natural tendency for governments to promote steady inflation. Imagine
that inflation was 0% and every year you made 2% on your investments rather
than 6% with 4% inflation. The government is losing over thirds of the revenue
they could have had.

------
jcdreads
Here's raw data for doing your own (US) inflation adjustments:

<http://www.measuringworth.org/datasets/uscpi>

------
alain94040
Poor article. Good introduction to the issue, and then... the end. It's
missing a body!

