|

Home Alone and Lessons on Inflation and Innovation

Each year leading up to Christmas, my family watches many of the same movies over and over again.  They never seem to get old.  While It’s a Wonderful Life is my all-time favorite, a scene from Home Alone struck me this year.

Home Alone takes us back to 1990 and contains a scene where Kevin, the abandoned eight-year-old, goes shopping in the supermarket.  On his solo trip to the store, he buys a half-gallon of milk, a half-gallon of orange juice, a TV dinner, bread, frozen mac and cheese, laundry detergent, cling wrap, toilet paper, a pack of toy soldiers, and dryer sheets. His bill came to $19.83.

An analysis of the same items was recently done and showed that today the bill would come to $40.60.  That’s a 104.7% increase over the last 33 years with a good chunk of that happening in the last few years after decades of low inflation.

As you may remember in the movie, Kevin raided his older brother’s kitty to come up with the money to pay for groceries.  But how do we protect ourselves from rising costs over time without borrowing from our big brother?  I found this information both interesting and encouraging.

Over the same time, the value of the S&P 500 index (The 500 largest publicly traded companies in the United States) grew from a value of 315.29 to 4,460.06.  That’s a 1,314% increase without including the value of dividends if those were reinvested.  Why did the value of these companies grow so much more than the price of groceries?  The earnings of the companies that make up the index grew from 21.47 to 190.75 an increase of 788%.  As companies innovate, create new products and services, and enter new markets, their ability to grow their earnings and the value of their enterprise increases.  Owning the shares of quality companies over time, in a well-diversified portfolio, greatly diminishes the risk of rising costs on the things we need and enjoy. A lot has changed in 33 years.  In the movie you didn’t see anyone on a personal computer, no smartphones, no streaming content on the TV (Kevin was using a VCR!), and no security cameras allowing you to view your home from almost anywhere.  If Kevin were Home Alone today, he’d be easier to contact and to get to safety.  That’s a great blessing.  But I’m glad that back in 1990 we got to see a 7-year-old defend his house against the Wet Bandits!

Any opinions are those of Landon Vick and not necessarily those of RJFS or Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete; it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decisions. 

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. 

Similar Posts