An update on inflation

Q: I know inflation makes money worth less over time. Is there any upside to that? — S.L., Kankakee, Ill.

A: Here’s one: Imagine that you’re earning $80,000 per year and making monthly $1,800 payments on your fixed-rate mortgage. Over time, your income will presumably grow along with inflation, and that $1,800 will represent a smaller and smaller portion of your income.

Q: I bought a stock. It tripled, then fell in price so that I only doubled my money. Should I have sold after it tripled and bought it again after it dropped? Or is it best to just wait and hold, hoping for more gains? — M.M., Ocala, Fla.

A: Selling at a top and then buying again at a bottom sounds great, but there’s one little problem: You can’t know when a stock has reached a top or a bottom. Indeed, you can’t even know if it’s going to rise or fall from day to day.

Focusing on your gain (or loss) so far when thinking about whether to sell or hang on means you’re looking backward. Instead, look forward: Consider the stock’s current price and what you expect the price to be in the future. Ideally, you’ll buy stocks when they seem undervalued — priced less than what you think they should be worth — and you might sell when they seem overvalued. Or, if you’re planning to hang on for many years, if not decades, hold on through thick and thin as long as the company is performing well and maintaining great potential.

When a company is healthy and growing, its intrinsic value will increase over time. Looking at measures such as price-to-earnings (P/E) ratios can give you a rough idea of valuation.