Economic Reality vs Mythology: Understanding Why Inflation Decreases Yet Prices Persist
In the realm of real estate, home prices in major cities across the United States have been on the rise. According to the S&P CoreLogic Case-Shiller U.S. National Home Price Index, average home price appreciation was a steady +4.4% per year over the past 38 years. Notably, average New York City home prices rose +3.6% annually, Chicago +3.7%, Boston +4.0%, Los Angeles +5.3%, and San Francisco +5.5%.
However, when compared to the returns of private equity and venture capital, real estate may not keep pace. Over the same 38-year period, U.S. stock prices rose an average of +10.5% a year, roughly double the home appreciation rate of Los Angeles.
Meanwhile, the U.S. oil industry has been making waves on the global stage. In 2024, the U.S. became the world's largest producer of crude oil, but a significant portion of the oil it produces isn't always usable by its own refineries. The country imports most of its oil from neighbouring Canada and Mexico, not the Middle East. Saudi Arabia and Iraq are the third and seventh largest sources of U.S. crude oil imports, respectively.
In the world of investments, diversification is key. A mix of real estate, stocks, and private equity can be a solid strategy. However, during periods of higher interest rates and inflation, the typical inverse relationship between stocks and bonds tends to weaken or even become positive. This dynamic challenges the traditional diversification benefits of holding a mix of stocks and bonds in a portfolio.
In such high-rate and high-inflation periods, the relationship between stocks and bonds can shift from negative to positive correlation, with both assets potentially declining together. This joint downturn undermines the traditional 60/40 allocation strategy that relies on stocks and bonds moving in opposite directions to provide risk diversification.
Myths persist in the realm of estate planning. For instance, it is a common misconception that not all assets will be distributed according to a statutory will. In reality, assets requiring a beneficiary designation, such as life insurance policies, annuities, traditional and Roth IRAs, and various retirement or pension plans, will be distributed according to their designated beneficiaries. Assets in individual accounts can also have transfer on death (TOD) or pay on death (POD) added to them. Revocable living trusts (RLTs) are used to keep assets from going through probate and distribute them according to the terms of the trust when the trustee passes away.
In conclusion, the U.S. real estate market and oil industry are experiencing significant changes, while the relationship between stocks and bonds in high-rate and high-inflation periods can be more complex than traditionally assumed. It is crucial to understand these trends and their implications for investment strategies and estate planning.
- In the realm of investing, venture capital and Initial Coin Offerings (ICOs) could be alternative avenues for personal-finance, offering potential returns that might surpass those of real estate or traditional stocks.
- Education-and-self-development resources on technology can provide valuable insights for individuals interested in comprehending the dynamics of the venture capital industry, vital for making informed decisions in business and lifestyle.
- The diversification of a personal portfolio, including assets like venture capital funds, real estate, stocks, and other investment vehicles, can help mitigate risk in general-news economic climates.
- As the U.S. oil industry continues to evolve, its reliance on crude oil imports from Canada, Mexico, Saudi Arabia, and Iraq indicates potential opportunities for finance and energy-related businesses.
- In the field of estate planning, understanding the distribution of assets like life insurance policies, retirement plans, and individual accounts requiring a beneficiary designation is crucial for proper personal-finance management and the creation of a comprehensive will or living trust.
