The Biggest Risk To Your Retirement (Part 2): Inflation With Phillip Toews

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104 – How does inflation affect your savings and income? No matter how much we try to predict inflation, it’s just not possible. Our best hope is to prepare for it.

In this episode, Jeremy Keil speaks with Phillip “Felipe” Toews, author of the article, Inflation’s Corrosive Effect On Financial Asset Returns, in the Investments and Wealth Monitor. Philip discusses the latest inflation trends and why it’s better to prepare for the possible outcomes than it is to attempt to predict future rates of inflation.

Phillip discusses:

  • How his firm, Toews Corporation Asset Management, helps investors when markets take an unexpected turn through behavioral investment coaching.
  • How long inflation rates stick around for stocks compared to bonds
  • The different inflation trends outside of the US
  • Why preparing for likely inflation trends is better than predicting future inflation trends, and how to prepare for them
  • And more

The Biggest Risk To Your Retirement: Inflation

Past Inflation

Over the past 100 years, we’ve seen fluctuating inflation trends. 

Between 1915-1920, we’ve seen 13-16% inflation. From 1941 – 1951, inflation dropped to 5-6%. And in 1973-1981, inflation crept back up to 9-10%.

The rate of inflation is unpredictable. We can’t control it. But we can control how we respond to it and prepare for it. Phillip Toews, the CEO of Toews Corporation – an asset management firm, specializes in investing in stock and bond markets and attempting to address the possibility of significant market changes.

At Toews Asset Management, they don’t look at the macro or fundamental data to attempt to predict what will happen to the stocks and bond markets. Instead, their different asset management programs, funds, and ETFs react to trends and help offset losses.

How Stocks and Bonds React to Inflation

Everyone says to invest in stocks and bonds for the long run, but how long is the long run?

Research suggests that in stocks, it takes around 15 years to be considered long enough for things to settle together and deal with any ups and downs in inflation. But for bonds, the run is longer, around 30-35 years.

While stocks typically increase with inflation over the long run they often have a short-term shock and decrease when inflation begins to kick in. The stock markets are also more predictive of the economy than the other way around. 

If you are waiting for the economy or inflation to ‘get better’ you’ll likely miss out on your chance to catch the rebound in stocks.  Bonds do not typically react well with inflation. Since the long run of bonds is typically 30-35 years and inflation typically has a long pattern be aware that your bond holdings might not keep up with the ‘purchasing power’ over time because of inflation’s corrosive effects.’

Inflation Outside of the US

We often think of our own inflation when we compare inflation rates, but if we look at inflation outside of the US, there have been 50 instances globally in countries where inflation went above 50% a month.

So when we think about high inflation in the US, the highest inflation we’ve ever seen over any 12-month-long period has peaked at just above 20%. It sounds like a lot right now, but when we compare it to other countries, we see it’s not as bad as we think. 

When we think of inflation, we tend to think of current causes like capacity issues and labor and commodities. But in those global instances of a 50% inflation rate, it was largely driven by currency crises. Countries ran out of the ability to service their debt, and as a result, the currency was largely devalued.

Purchasing Power

When people talk about inflation, there’s another term called purchasing power.

If you think of a bond or a stock, if the inflation increases by 5%, but your stock or bond grew by the same 5% then its purchasing power remains the same, then your purchasing power remains the same. You had the same ability to sell that stock or bond and purchase other inflated goods or services before and after the prices were inflated.

Purchasing power is more important than the inflation rate because as long as the rate of inflation doesn’t exceed the inflated income and asset/investment values, the purchasing power either remains the same or increases.

Predicting vs Preparing For Inflation

The way to think about inflation is not “have we peaked?” or “what was the one-year number?” but what is the cumulative effect of the inflation experience?

As we have already mentioned, inflation rates constantly change. So, we can’t try to determine what normal inflation is. Instead, we consider inflation as a trend continually moving and changing.

Currently, inflation is trending upward. But what will the next change in the trend be?

We can’t predict the change, but we can prepare for the likely outcomes.

How do we invest if the inflation rate is currently trending upwards, but we don’t know if it will continue or not?

We look at historical data.

Examining the high inflation episodes we discussed, we looked at what happened to stocks during those periods and what happened to bonds. With that data, we can better prepare for the likelihood of those trends repeating themselves over similar periods. But remember, anything could change at any point – there is no guarantee on what will happen and when.


To learn more about inflation and how to prepare for it, check out the resources below!

If you have any questions, feel free to contact us or our guest, Phillip Toews, using the contact information provided below!


Connect With Phillip Toews:

Connect With Jeremy Keil:

About Our Guest:

Phillip Toews is the CEO and portfolio manager at Toews Asset Management, dedicated to helping advisors and clients capitalize on rising markets using their investment approach. Phillip has a passion for behavioral finance and its role in investment decision-making. He helps advisors identify various client triggers and perform the best practices to address clients’ behavioral tendencies to help manage and build meaningful client relationships.



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