Q: Will inflation ever matter again?

A: Inflation always matters.

With inflation at historically low levels, it is easy to forget or ignore the drain that inflation can impose on long-term returns. The graphic shows the big chunk of historical stock, bond, and cash returns eaten away by rising prices. Over time, inflation dramatically erodes real purchasing power; for instance, what cost $1,000 in 1980 costs $2,620 today.*

Underestimating the impact of inflation can lead to a variety of potential pitfalls for investors. Most importantly, it may lead some to overweight portfolios with "safer" investments like bonds and bills. While the average pre-inflation returns of bonds (5.7% annually from 1926 to 2008) may seem satisfactory, the after-inflation returns (2.6%) may seem much less palatable.

Selecting an appropriate asset allocation is a critical process that should reflect personal, family, and business variables. It should also be made with eyes wide open to the persistent impact of inflation (and taxes, too).

Next time: Can we set it and forget it?

Contact: John Osbon 617.217.2772 josbon@osboncapital.com

Osbon Capital Management, LLC ("Osbon") is an SEC registered investment adviser with its principal place of business in the Commonwealth of Massachusetts. Osbon and its representatives are in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which Osbon maintains clients.

Stocks are represented by the Standard & Poor's 500®, an unmanaged group of securities and considered to be representative of the stock market in general. Bonds are represented by the 20-year U.S. government bond, and cash by the 30-day U.S. Treasury bill. Inflation is represented by the Consumer Price Index. An investment cannot be made directly in an index. The data assumes reinvestment of all income and does not account for taxes or transaction costs.

Any historical returns are not net of advisory and/or other fees and expenses. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this Q&A will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

For additional information about Osbon, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money. For information pertaining to the registration status of Osbon, please contact Osbon or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).

*Bureau of Labor Statistics inflation calculator.