Inflation Risk overstated?

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I was reading an interesting book on budgeting and finances and the author said that inflation was way overrated as a concern among investors.

He went through a list of items that cost more in the 1970's than it did in the 1990's (excluded housing of course).

He then went on to recommend buying Treasury Bonds as the mainstay of a person's investment portfolio.

Although I did disagree with the conclusions/recommendations, it did make me think how much we should take the ol' 4% inflation risk into account when accounting for other risk factors.

What say the forum?

[jIM_Ohio]

1-2 % inflation is expected each year.

but a 4% or 7% type number would do two things
1) spook the markets and everything would lose money
2) put the plans most of us make right to bed

a small position in a fund like PRFPX or in TIPs/I-bonds makes sense in these cases.

[disneysteve]

Most calculators I see use 3% as the inflation rate. That's what I use in my own planning.

As for making your portfolio mainly T-bills, if I did that, there is no chance that I'd ever be able to retire at a decent age, if ever. The return wouldn't be nearly enough to accumulate the amount of money I anticipate needing. Most of us need to keep the bulk of our money invested in equities to have a reasonable shot at building a large enough nest egg.

[humandraydel]

It sounds to me like the author may be cherry picking things to make his (invalid) point. You can ALWAYS find SOME things that were more expensive in SOME years. But as a whole inflation is very real. Some things (healthcare, college education, housing) are increasing so fast that they will MORE than make up for the few that decrease in price.

[Scanner]

DisneySteve,

Yeah, that's the party line and I guess I beleive it. It was just interesting to hear a finance person pushing them and basically saying, "Don't worry about inflation."

You'll also find a lot of "experts" who think you should be fully invested in gold, silver, food and guns.

[Hypersion]

What items did he talk about? I'm guessing Electronics and junk/fast food.

[kv968]

From 1970 to 2005, the rate of inflation per CPI was on average 4.6%. Granted most of that is attributed to the high inflation rates of the 70's. I think it's safe to use 3% as a guideline since that's seems to be the Fed's threshold.

[macho]

if you have a account with e-trade get your money out they have a market cap of 5 billion and have 30 billion of high risk mortgage loans if they get shut down you will lose access to your account until SIPC figures out what to do