Login | December 02, 2025
Deflation dangers
THE MOTLEY FOOL
Ask the Fool
Published: December 2, 2025
Q: What, exactly, is deflation? -- B.S., Draper, Utah
A: It's the opposite of inflation, and it's what you call an economic environment where prices have been falling. That means your income will buy you more goods and services, but it's not all positive -- and deflation can be worse than inflation.
Deflation generally occurs when demand falls and supply increases. Supply increases when production costs drop, often due to technological advances. Demand can fall when consumers are worried about the economy and choose to spend less and save more; overall pessimism can also lead to less spending.
Deflation is dangerous because when prices are falling, consumers may put off purchases, hoping for even lower prices, which causes the economy to slow down. A slowing economy can lead to job losses and rising unemployment, and when companies have less money coming in, they're less likely to invest in further growth. Wages can be reduced as well, and businesses and people earning less money can have trouble paying off their debts. All this could turn into a vicious cycle -- and a severe recession.
Deflation-fighting moves include injecting more money into the economy (which can spur inflation) and lowering interest rates.
Q: What are "catastrophe bonds"? They don't sound like something I'd want to buy. -- E.G., Washington, Pennsylvania
A: Often referred to as "cat bonds," they're bonds sold by insurance companies to help them cover the costs of catastrophes such as hurricanes or earthquakes. These bonds offer relatively high yields and diversification for your portfolio, but you could lose your entire principal if a predefined event occurs within the (typically multiyear) life of the bond.
Fool's School
Be a Smart Investor
One of the smartest ways to invest in the stock market is simply to park your long-term dollars in a low-fee, broad-market index fund, such as one that tracks the S&P 500. Over many decades, the index has averaged annual gains close to 10%.
Two great funds that could fit the bill are the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV). If you're interested in investing in individual stocks, though, you might want to heed the following tips.
-- Read and learn about stock investing: Keep reading and learning throughout your investing life, because the more you know, the smarter decisions you'll likely make, and the more money you're likely to make as well. You can learn a lot at Fool.com, and also in books such as "The Little Book That Still Beats the Market" by Joel Greenblatt, "The Little Book of Common Sense Investing: The Only Way To Guarantee Your Fair Share of Stock Market Returns" by John C. Bogle and "The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments" by Pat Dorsey.
-- Mind a company's valuation: There are many great companies out there, but some are overvalued. Seek ones with price-to-earnings (P/E) or price-to-sales (P/S) ratios below their five-year averages, or well below those of their peers. Aim to invest when shares are trading for less than they seem to be worth.
-- Don't take unnecessary risks: Avoid penny stocks (those trading for less than around $5 per share). Don't invest on margin (with borrowed money). Don't day-trade. Don't try to time the market. And don't invest in companies you don't fully understand.
-- Overcome your emotions: Don't buy stocks out of greed or sell out of them when you're afraid. Buy only when you've studied a company, understand its risks and opportunities well and think it's priced attractively. When the market pulls back -- as it will now and then -- that's a great time to buy more stocks instead of selling.
My Dumbest Investment
Mobile Home Dweller
My most regrettable investing move is one I didn't make. In 1974, a friend wanted me to give him $1,000, which he would eventually invest into real estate in the San Francisco Bay area. Long story short, he now owns three homes, and I live in a mobile home. -- D.M., online
The Fool responds: You've probably kicked yourself a lot over this story, but remember that only hindsight is 20/20. You couldn't have known way back in 1974 what would happen to real estate values in San Francisco. (Some, of course, had hunches -- and some of them were right.)
Recently, the San Francisco area was the third-most-expensive housing market in the U.S. (per Realtor.com), with a median listed price for homes for sale of $1.32 million. The San Jose area, a bit south of San Francisco, was ranked No. 1, with a median list price of $2.02 million.
You might think about what you did instead with any investable sums over the years. If, for example, you'd invested $1,000 in the S&P 500 back in 1974, your stake would have grown to be worth around $267,000 by 2025. If you'd added to that investment over time, you'd be sitting on even more.
Rewarding lives can be lived in mobile homes -- we hope you're living well.
(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)
Foolish Trivia
Name That Company
I trace my roots back to 1933, when Chevron's predecessor, Standard Oil of California (Socal), was allowed to drill for oil in a country in the Middle East. It discovered commercial quantities in 1938. By 1948, I was co-owned by Socal and the companies later known as Texaco, Exxon and Mobil; I soon moved my headquarters to New York. By 1980, I was fully owned by the country where I first operated. Today, I'm the largest energy company on Earth, and I am among the world's Top 10 most valuable companies. (I've been the highest-valued in the world at times.) Who am I?
Last Week's Trivia Answer
I trace my roots back to 1946, when my founder opened a restaurant in Hapeville, Georgia, and developed a sandwich featuring a chicken breast and two pickle chips. (I still serve it today.) He launched me in an Atlanta mall in 1967, where I was a food court pioneer. Today I'm one of America's largest quick-serve restaurant companies, with 200,000-plus workers at more than 3,000 locations across the U.S. and Canada. I've donated the equivalent of more than 200 million meals to those in need. My name references fillets. You can't invest in me, because I'm privately held. Who am I? (Answer: Chick-fil-A)
The Motley Fool Take
A Pfat Dividend Yield
Pfizer's (NYSE: PFE) sales of COVID-19 products are at only a fraction of their levels from a few years ago. Meanwhile, the company faces the loss of patent exclusivity for many drugs -- including Inlyta, Xeljanz, Eliquis, Xtandi, the Vyndaqel brand family, and Mektovi -- over the next three years.
Pfizer may seem like a poor investment, despite its recently very low forward-looking price-to-earnings (P/E) ratio below 9; however, there's a better story to this big drugmaker than meets the eye.
Pfizer's sales for the products losing exclusivity won't dry up overnight. More important, the company has multiple products that should generate strong growth, including bladder cancer drug Padcev, multiple myeloma drug Elrexfio, and respiratory syncytial virus (RSV) vaccine Abrysvo.
And don't forget Pfizer's pipeline: It features 108 candidates, 28 of which are in phase 3 (late-stage) testing. Another four await regulatory approvals. It's also growing by acquisition, recently aiming to buy Metsera, a company that has four weight-loss drug candidates.
Finally, Pfizer's dividend yield -- recently around 7.1% -- helps boost the stock's total return significantly. While Pfizer does face some challenges, its dividend can compensate long-term investors for those risks. (The Motley Fool owns shares of and recommends Pfizer.)
COPYRIGHT 2025 THE MOTLEY FOOL, DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION, 1130 Walnut, Kansas City, MO 64106; 816-581-7500.