We agree with the widely held view that inflation is likely to be higher in the next few years than in the last few. However, we disagree with the fear that inflation will come roaring back and surpass the peaks it hit in the 1970s and 1980s.

Investors who expect severe inflation are focusing on the U.S. Federal Reserve’s efforts to expand the money supply and speed up economic growth. Growth in the money supply creates the potential for rising prices throughout the economy. However, it takes something more to turn that potential into reality.

Money-supply growth alone failed to spur inflation in Japan in the past couple of decades, for instance. That’s because Japanese banks were reluctant to make loans, and Japanese consumers were reluctant to borrow. Something like that could also happen here.

Investing advice: Why today’s outlook is different from the 1970s and 1980s

Our view is that inflation soared in North America in the 1970s and 1980s, partly due to the maturing of the baby boomers. As baby boomers entered the workforce and replaced older workers, they had to be trained in their new jobs. This hurt productivity and spurred businesses to raise prices.

As the boomers formed families, they borrowed to buy their first homes, so they were bidding up both real-estate prices and interest rates. The inflationary effect of their home buying spread out and pushed up prices throughout the economy.

Today, we have no great home-buying age group coming into the market. Moreover, the plunge in U.S. home prices in the past few years is likely to make home buyers much less eager to bid prices up.

Invest in your Financial Future for FREE Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor. Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

The inflation of the 1970s and 1980s left a deep imprint on the minds of anybody who lived through it as an adult. Promoters today are stoking this fear of a great inflation revival, and using it to market highly speculative investments in gold and real estate. Our investing advice is that these investments are poor choices on at least two counts.

First, it’s always a mistake to buy investments that aim to cash in on a particular prediction, since the prediction may fail. Second, newly created investment deals are like new stock issues—they come to market when it’s a good time for insiders to sell, but that may not be, and often isn’t, a good time for you to buy. When the promoter aims to cash in on a fear, rather than build a profitable business, the outlook is that much worse.

For most Canadian investors, our investing advice is that ownership of a family home provides a substantial inflation hedge, and it comes with substantial tax benefits, as well. You’ll also have an inflation hedge in the Resources sector of your portfolio. To top it off, well-established companies tend to manage their businesses so that they profit from inflation, or at least insulate themselves from its worst effects.

Let our investing advice guide you through the coming critical years

All in all, we’re reasonably optimistic about the market outlook for the next few years, provided that you follow our three-part TSI Network.ca investing advice: invest mainly in well-established companies, spread your money out across the five main economic sectors, and avoid or downplay investments that are in the broker/media limelight.

In particular, stay out of any investment that seems aimed at cashing in on an inflationary surge that may never come.

In the latest issue of The Successful Investor, we analyze 21 stocks that could provide steady gains in the critical years ahead. At the end of our analysis of each stock, we give you our clear advice of whether you should buy, hold—or sell.

Best of all, right now you can get this issue ABSOLUTELY FREE. Your 1-month free trial also includes 5 in-depth investment reports, our weekly Email/Telephone Hotline and much more. Don’t miss out. Click here to get started right away.