What do you assume about inflation?

We base our inflation assumption on the implicit inflation expectations found in bond market prices (see How to Forecast Inflation). To measure those expectations we use the breakeven inflation rate implied by the difference in market yields of nominal treasury bonds and inflation-protected treasury bonds (TIPS) with a 30 year maturity. Because our advice engine, Path, focuses on the long term, we use a 120 day rolling average of this market based inflation expectation measure as the inflation assumption, preventing our inflation assumption from being too sensitive to short term market changes, but still capturing medium and long run changes in market expectations.

For more details on our methodology, please log into your account and review the Path disclosures.