Recently, Katie and I have had some issues with our freezer not freezing, therefore having ice cream after dinner was not an option. With the temperature yesterday a cool 118 degrees and with Francis being rewarded for being good, Katie and I decided to visit out neighborhood ice cream shop. Even though this shop was opened sometime in the last five years, its atmosphere feels like an ice cream parlor of yesteryear. One fascinating design element is their wall of candy including candy which can take you back to your youth.
As a child, I did not really have much of a sweet tooth. Occasionally, I would have some ice cream or candy, however I do remember enjoying Big Hunks. For those who do not remember, Big Hunks are chewy nougat with peanuts as seen in the picture below. To be chewy, the nougat needed to be soft, which many times it was not. In those cases, only after driving away from the store and putting the bar on the dashboard for a few minutes during an Arizona summer, was the Big Hunk ready to eat.
While I thought about my childhood, I saw the price of the Big Hunk in the ice cream parlor and was shocked to see it was nearly $2.00. Seeing this, it made me wonder how much more expensive candy has gotten over the decades.
Per the website, Candy Wrapper Archive, they did an analysis of candy prices from 1900 through 2010. In the early 1900s, candy was calculated to be $.02 per ounce. By 1940, it was $.033 per ounce. Jumping ahead to 1970, you are looking at $.076 per ounce. Finally, in 2009, it was estimated to be approximately $.50 per ounce. Over the years this has been quite the increase and when you think to yourself, things were cheaper when I was a kid, you are exactly right. Things are more expensive today and as we all know, that is due to inflation.
Inflation can be felt in every part of our life. From food to fuel, to the cost for healthcare and education, inflation has impacted our lives by driving costs higher. While always occurring, we may not see inflation as it occurs, however before long we feel it. It is felt when we have lost purchasing power. There are various causes for inflation and if not constantly watched by the Federal Reserve, could result in high inflation and if it becomes out of control, hyperinflation. Inflation is a necessary part of a long-term growing economy.
You can no longer buy the loaf bread for $.50 or go to college for a few hundred dollars. The cost for products ten years from now will most likely be more than they are today. You may have heard us discuss mortgages and whether someone should pay them off. Depending on the family and their specific situation, it may not make sense to pay off the mortgage because you are using today’s dollars to pay future payments. Your fixed rate mortgage, with a fixed payment, does not change as inflation increases. Thus, you are paying future mortgage payments with dollars that have less purchasing power as compared to when you first obtained the mortgage.
Why should inflation be important to you? One of our goals for you is to not lose purchasing power. Put it another way, we want to create a portfolio which outpaces inflation over the long term. As the economy expands and contracts while the equity and bond markets go up and down, inflation still has the potential to occur.
Sometimes it may not be possible to keep up with inflation. As an example, one’s immediate cash flow needs may cause one’s portfolio to become much more conservative which could prevent the portfolio from keeping up with the inflation. Another example could involve a sharp increase in medical expenses that could be so high as to make it impossible to stay ahead of medical cost inflation. One of our goals is to constantly review your cash flow needs as compared to current inflation, and build a portfolio around your risk profile, and yet help you retain purchasing power.
During my research about candy I did find a few places where you can order retro candy from your youth. If looking to do something this weekend, you may want to think about easier days and your favorite candy. You may be surprised to learn you could still find that favorite candy you were fond of as a child!
Stay safe and healthy.
Chris Zeches, CFP®