Infographics

A Visual Guide to Stagflation, Inflation, and Deflation

Published

3 years ago

September 30, 2022

Dorothy Neufeld

This infographic is available as a poster.

Stagflation

This infographic is available as a poster.

A Visual Guide to Stagflation, Inflation, and Deflation

Today, high inflation and slowing economic growth have contributed to stagflation worries.

As of August 2022, the U.S. inflation rate has risen to 8.3%, above the central bank target of 2%. Yet unlike the last period of stagflation in the 1970s, unemployment—a key ingredient for stagflation—remains low.

In this infographic from New York Life Investments, we show the key differences between stagflation, inflation, and deflation along with the broader economic implications of each.

Main Features of Inflationary Environments

What are the main characteristics of each inflationary scenario?

	Economic Growth	Inflation	Unemployment
Stagflation	Slows	Increases	Increases
Inflation	Increases	Increases	Decreases
Deflation	Slows	Decreases	Increases

The key markers of stagflation are weak growth, persistent inflation, and structural unemployment—meaning that high unemployment levels continue beyond a recession.

In a stagflationary scenario, inflation expectations continue to rise each year. This can happen when inflation stays too high for too long, enough for expectations to shift across the economy. This was the case in the U.S. in the 1970s, until the Federal Reserve fought inflation with steep interest rate hikes.

Here’s a closer look at some of the main causes of each scenario and how they’ve historically impacted households and businesses.

1. Stagflation

The term stagflation is the combination of ‘stagnation’ and ‘inflation’.

The primary causes include the expansion of the money supply feeding into higher inflation, as well as supply shocks, which can drag on economic growth.

During periods of stagflation, consumers spend more on items such as food and clothing, while earning less—reducing their purchasing power. Less purchasing power can eventually cause people to buy less, leading to falling corporate revenues, which can ripple across the economy.

Case Study: 1970s Stagflation

The stagflation of the 1970s saw inflation, as measured by the Consumer Price Index, increase from 1% to 14% between 1964 and 1980.

Price pressures, driven by skyrocketing energy prices in the 1970s, contributed to a sharp economic downturn. By 1980, unemployment reached 7.2%.

Year	Annual Inflation Rate	Unemployment Rate (December)	Annual GDP Growth
1964	1.3%	5.0%	5.8%
1980	13.5%	7.2%	-0.3%

In response, the Federal Reserve raised interest rates as high as 20% in 1981. Soon after, inflation sank to 5% by 1982 and unemployment levels improved.

2. Inflation

Inflation is the rise in the price of goods and services across the economy. Broadly speaking, low and stable inflation is associated with periods of economic growth and low unemployment. It can be driven by rising consumer demand.

The expectation of predictable inflation allows consumers and businesses to prepare for the future, in terms of both their purchases and investments.

Case Study: 1990s-2000s

Over the 1990s and 2000s, the U.S. saw relatively low and stable inflation.

Rapid global population growth, the absence of oil shocks, and expanding global trade contributed to falling costs across industries. Between 1990 and 2007, inflation averaged 2.1% compared to 8.0% during the 1970s as price pressures became less volatile.

Year	Annual Inflation Rate	Unemployment Rate (December)	Annual GDP Growth
1990	5.4%	6.3%	1.9%
2007	2.9%	5.0%	2.0%

Today, several central banks adhere to a 2% inflation target to ensure prices remain stable and predictable.

3. Deflation

Deflation is the fall in prices of goods and services in the economy.

In many cases, its main causes are demand shortfalls, reduced output, or an excess of supply. For households, spending may stall as consumers wait for prices to fall. In turn, declining prices may lead to a lag in growth for businesses.

Sometimes, deflationary periods raise concerns of slower economic growth. However, supply-driven deflationary periods may be associated with lower prices, raising real incomes and boosting output as exports become more competitive.

Case Study: 1930s Great Depression

Prior to WWII, deflationary episodes were more common than today. One prime example is the Great Depression of the 1930s, when real GDP fell 30% between 1929 and 1933 and unemployment spiked to 25%.

Year	Annual Inflation Rate	Unemployment Rate (December)	Annual GDP Growth
1930	-2.7%	8.7%	-8.5%
1933	-5.2%	24.9%	-1.2%

Tightening monetary policy contributed to this environment. In fact, between 1930 and 1933, the U.S. money supply contracted roughly 30%, while average prices fell by a similar amount.

Historical Asset Class Performance

Which asset classes have historically tended to perform well across different types of inflationary environments?

Average Real Annual Total Returns (1973-2021)	Goldilocks	Disinflation	Reflation	Stagflation
U.S. Equities	16.1%	8.4%	14.6%	-1.5%
U.S. Treasuries	4.3%	8.1%	-2.0%	0.6%
U.S. T-Bills	0.8%	1.7%	0.0%	0.4%
Commodities	0.4%	-5.6%	21.0%	15.0%
Gold	-2.5%	1.3%	-1.1%	22.1%
REITs	18.1%	3.5%	14.0%	6.5%

Defensive assets like gold and commodities have historically performed well during stagflationary periods, with average returns of 22.1% and 15.0%, respectively.

Meanwhile, U.S. equities have typically performed well during moderate inflation, or ‘goldilocks’ environments, characterized by falling inflation and rising economic growth.

Both U.S. equities and Treasuries have shown the strongest real returns in deflationary or ‘disinflationary’ periods of slowing growth and inflation, at over 8% returns on average each.

Understanding Different Inflationary Environments

Today’s inflationary period is jarring for investors after an extended period of low and stable inflation. With this in mind, the economy has historically cycled through different types of inflationary periods.

While central banks aim to influence price stability and employment through monetary policy, investors can influence their portfolio by adjusting their asset allocation based on where the inflationary environment may be heading.

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Infographics

A New Framework for Personalized Financial Portfolio Alignment

The MSCI Similarity Score compares a client’s financial portfolio to a model portfolio based on risk exposures, allowing for personalization.

Published

3 weeks ago

June 6, 2025

Jenna Ross

A waterfall chart showing the MSCI Similarity Score calculation from 100% perfect financial portfolio alignment being reduced by different risk exposures.

A New Framework for Personalized Financial Portfolio Alignment

There’s a tension between clients’ need for personalization and the one-size-fits-all approach of model portfolios. Traditionally, wealth management firms check financial portfolio alignment based on exact holdings. However, some level of mismatch with a model portfolio is inevitable due to client preferences and circumstances.

How can advisors meet the personalization needs of their clients at scale?

This graphic, created in partnership with MSCI Wealth, highlights a new framework called the MSCI Similarity Score that allows for customization.

Introducing the MSCI Similarity Score

With the MSCI Similarity Score, firms can assess financial portfolio alignment in a simple, single score. A score of 0 indicates no alignment, while a score of 100 indicates full alignment.

The score measures how similarly a client portfolio behaves compared to a firm’s model portfolio based on various factors. For equity, this includes things like the country and industry of a company, as well as the strategies used, such as targeting growth stocks. For instance, two U.S. technology growth stocks may behave similarly in response to market movements.

This approach allows for more flexibility to meet clients’ unique goals and risk appetites. It’s a similar idea to someone counting calories, rather than restricting their diet to specific foods.

Seeing the Score in Action

How does the MSCI Similarity Score work in practice? Consider a hypothetical U.S. client that an advisor is onboarding.

The advisor has assigned the client to a high-quality global equity model portfolio, and is checking alignment.

Name	Model Allocation	Client Allocation	Difference
Core Total US Stock Market ETF	--	30%	-30%
MSCI USA Quality Factor ETF	--	10%	-10%
Total Stock Market ETF	40%	--	40%
Core MSCI EAFE ETF	--	8%	-8%
MSCI Emerging Markets ETF	--	4%	-4%
MSCI INTL Quality Factor ETF	--	3%	-3%
MSCI ACWI ex-US ETF	20%	--	20%
7-10 Year Treasury Bond ETF	--	15%	-15%
Corporate Bond ETF	--	8%	-8%
1-3 Year Treasury Bond ETF	--	3%	-3%
Core US Aggregate Bond ETF	30%	--	30%
Private Equity Fund	--	10%	-10%
Corporate Lending Fund	5%	10%	-5%
Gold ETF	5%	--	5%

Specific funds and ETFs are for illustration only and do not constitute recommendations.

The client’s holdings are quite different from those of the model portfolio.

However, using the MSCI Similarity Score, the advisor compares the two portfolios on the factors driving their performance.

MSCI Similarity Score Breakdown

Starting from a perfect score of 100, each difference in risk exposure between the client’s portfolio and the model portfolio reduces the score.

Risk Factor	Score
Starting Point: Perfect Alignment	100.0%
Global Equity	-7.5%
Commodities	-4.9%
US Private Equity	-2.3%
U.S. Equity	-1.9%
USD Rates Level	-0.4%
Final Similarity Score	83.0%

The biggest difference between the two portfolios is their exposure to global equity risk.

With a strong Similarity Score of 83.0%, the advisor can see that the drivers of risk for both portfolios are closely aligned despite holding different funds.

A Flexible Approach to Financial Portfolio Alignment

The MSCI Similarity Score helps wealth management firms assess alignment between a client portfolio and model portfolio based on their behavior, rather than exact holdings.

This approach has a number of benefits.

Personalization: Wealth managers can customize client solutions without sacrificing portfolio alignment.
Transparency: Clients can see how their financial portfolio aligns with the firm’s recommendation, building their confidence in their investments.
Scalability: Firms can quickly see the score across multiple portfolios, helping them manage thousands of clients efficiently.

As client needs evolve, the MSCI Similarity Score is a simple and innovative way to customize financial portfolio alignment.

Learn more about the MSCI Similarity Score.

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Infographics

The 20 Most Common Investment Mistakes, in One Chart

Here are the top investment mistakes to avoid, from emotionally driven investing to paying too much in fees.

Published

2 years ago

November 7, 2023

Dorothy Neufeld

The 20 Most Common Investment Mistakes

No one is immune to errors, including the best investors in the world.

Fortunately, investment mistakes can provide valuable lessons over time, providing investors an opportunity to gain insights on investing—and build more resilient portfolios.

This graphic shows the top 20 mistakes to watch out for, according to the CFA Institute.

20 Investment Mistakes to Avoid

From emotionally driven investment decisions to paying too much on fees, here are some mistakes that investors commonly make:

Top 20 Mistakes	Description
1. Expecting Too Much	Having reasonable return expectations helps investors keep a long-term view without reacting emotionally.
2. No Investment Goals	Often investors focus on short-term returns or the latest investment craze instead of their long-term investment goals.
3. Not Diversifying	Diversifying prevents a single stock from drastically impacting the value of your portfolio.
4. Focusing on the Short Term	It’s easy to focus on the short term, but this can make investors second-guess their original strategy and make careless decisions.
5. Buying High and Selling Low	Investor behavior during market swings often hinders overall performance.
6. Trading Too Much	One study shows that the most active traders underperformed the U.S. stock market by 6.5% on average annually. Source: The Journal of Finance
7. Paying Too Much in Fees	Fees can meaningfully impact your overall investment performance, especially over the long run.
8. Focusing Too Much on Taxes	While tax-loss harvesting can boost returns, making a decision solely based on its tax consequences may not always be merited.
9. Not Reviewing Investments Regularly	Review your portfolio quarterly or annually to make sure you’re staying on track or if your portfolio is in need of rebalancing.
10. Misunderstanding Risk	Too much risk can take you out of your comfort zone, but too little risk may result in lower returns that do not reach your financial goals. Recognize the right balance for your personal situation.
11. Not Knowing Your Performance	Often, investors don’t actually know the performance of their investments. Review your returns to track if you are meeting your investment goals factoring in fees and inflation.
12. Reacting to the Media	Negative news in the short-term can trigger fear, but remember to focus on the long run.
13. Forgetting About Inflation	Historically, inflation has averaged 4% annually. Value of $100 at 4% Annual Inflation After 1 Year: $96 After 20 Years: $44
14. Trying to Time the Market	Market timing is extremely hard. Staying in the market can generate much higher returns versus trying to time the market perfectly.
15. Not Doing Due Diligence	Check the credentials of your advisor through sites like BrokerCheck, which shows their employment history and complaints.
16. Working With the Wrong Advisor	Taking the time to find the right advisor is worth it. Vet your advisor carefully to ensure your goals are aligned.
17. Investing With Emotions	Although it can be challenging, remember to stay rational during market fluctuations.
18. Chasing Yield	High-yielding investments often carry the highest risk. Carefully assess your risk profile before investing in these types of assets.
19. Neglecting to Start	Consider two people investing $200 monthly assuming a 7% annual rate of return until the age of 65. If one person started at age 25, their end portfolio would be $520K, but if the other started at 35 it would total about $245K.
20. Not Controlling What You Can	While no one can predict the market, investors can control small contributions over time, which can have powerful outcomes.

For instance, not properly diversifying can expose you to higher risk. Holding one concentrated position can drastically impact the value of your portfolio when prices fluctuate.

In fact, one study shows that the optimal diversification for a large-cap portfolio is holding 15 stocks. In this way, it helps capture the highest possible return relative to risk. When it came to a small-cap portfolio, the number of stocks rose to 26 for optimal risk reduction.

It’s worth noting that one size does not fit all, and seeking financial advice can help you find the right balance based on your financial goals.

Another common mistake is trading too much. Since each trade can rake up fees, this can impact your overall portfolio performance. A separate study showed that the most active traders saw the worst returns, underperforming the U.S. stock market by 6.5% on average annually.

Finally, it’s important to carefully monitor your investments regularly as market conditions change, factoring in fees and inflation. This will let you know if your investments are on track, or if you need to adjust based on changing personal circumstances or other factors.

Controlling What You Can

To help avoid these mistakes, investors can remember to stay rational and focus on their long-term goals. Building a solid portfolio often involves assessing the following factors:

Financial goals
Current income
Spending habits
Market environment
Expected returns

With these factors in mind, investors can avoid focusing on short-term market swings, and control what they can. Making small investments over the long run can have powerful effects, with the potential to accumulate significant wealth simply by investing consistently over time.

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