Good afternoon & happy Saturday! I’ll be traveling on Monday morning so I wanted to get this memo out in advance.
“Inflation is like toothpaste, once it’s out you can hardly get it back in again.”
– Karl Otto Pohl
Last week I shared about how couples met for the last roughly 100 years and the dramatic shift to 60% of couples meeting online these days.
Well, you know what else has changed over the last 100 years … and 50 years … and 10 years … and 5 years? The cost of virtually everything.
Increasing costs is a tax on every living human being … we call it inflation.
Inflation is sneaky because it usually doesn’t jump out at us in an attack, instead it slowly chips away. It’s the box of cereal that goes from $5.19 to $5.39, or the movie ticket that goes from $10.99 to $11.49, or the plane ticket that was $219 and is now $239.
Combating and beating inflation is a major reason why we invest.
I bought my first house at the ripe age of 19 for $23,500. Granted, it was a very modest 550 square foot, 2 bedroom, 1 bath house, but it was mine. I think my mortgage payment was $217/month.
Just for kicks and giggles I just went to Zillow to see what the house is worth today … $153,300. It appears that it has been remodeled to 814 square feet, but that is still a staggering increase from 26 years ago when I was first entering adulthood.
That my friends… is inflation.
That house didn’t jump from $23,500 to $153,300 overnight, but rather small increases year over year until we get to this point.
Simply put, inflation is the rate at which prices for goods and services rise over time.
Think of it like the slow drip of a faucet—barely noticeable day-to-day, but over years, it adds up.
According to recent data, inflation in the U.S. has averaged about 3% annually over the past century. That means a $1 coffee in 1980 costs us about $4 today. The culprits? Supply and demand shifts, production costs, or economic policies … but I’ll spare you the overly nerdy analysis (there’s a first 😉)
For us, it’s less about why prices rise and more about what we do about it and how to keep our wealth from eroding under the deceitful power of inflation.
Inflation is a silent wealth-killer.
Let’s say you stash $10,000 under your mattress (please don’t!). At 3% inflation, in 20 years, that $10,000 will only buy what $5,500 buys today. That’s not because you spent it … it’s because inflation chipped away at your purchasing power.
The Bureau of Labor Statistics has an inflation calculator where you can put in a start date and an end date to see how much inflation has eroded the purchasing power of a dollar over time. Check it out here: CPI Inflation Calculator
Especially for retirees or those on fixed incomes, inflation can feel like running a race where the finish line keeps moving. It can be unbelievably frustrating.
Inflation teaches us that hoarding cash without a plan is like gulping down our resources … it can leave us empty later.
But I have good news: investing can outpace inflation and help your wealth not just keep up with inflation but actually grow well above inflation.
Unlike cash, which loses value over time, a properly constructed investment portfolio historically grows faster than the rate of inflation. This is a major reason why we invest.
It’s a major reason why we are willing to tolerate, and even embrace, temporary decreases in the values of our investments … because we understand that’s how we can beat inflation over time.
I’m not asking anyone to love it when investments go down, but what I will remind us during those times is that it is a necessary price to pay for the ability to beat inflation long-term. It’s just the price of admission. In good economic times like these I think it’s important to remember these truths.
Here’s another link worth checking out: S&P 500 Return Calculator, with Dividend Reinvestment. This allows you to put in a start date and an end date of the S&P 500 to get the rate of return during that period of time. If you check the “Adjust for inflation (CPI)” button it will show you how much the S&P 500 beat inflation by during that period of time.
If you play with that webpage, you will discover that investing is an unbelievably powerful tool in the battle against inflation.
I was born in January 1980. According to the first link I shared, $100 in January 1980 would need to be $415.23 in July 2025 just to keep up with inflation. If I reverse those numbers, $100 in January 1980 would only have the purchasing power of $24.08 today.
Alternatively, according to the 2nd link I shared, the S&P 500 return from January 1980 through July 2025 is 11.999% with dividends reinvested. When I check on the “adjust for inflation” box that figure goes to 8.552%. That means the in my 45-year lifetime, the S&P 500 has not just kept up with inflation but actually beat inflation by 8.552%!
My friends, this is HUGE!
On a financial calculator I put in $100 with a 11.999% growth rate for 45 years and the figure it generated is $21,545.09.
That means that $100 when I was born would need to be worth at least $415.23 to keep up with inflation but could be $21,545.09 if invested in the S&P 500.
See why I love investing!?!? What else can accomplish this?
If the price to pay to get these types of returns is some short-term volatility, then sign me up. It is well worth the price of admission!
Please forgive me, I get a little worked up over this stuff. 😊 I’ll get off my soap box now. 😉
Obviously, we have no idea what the future holds. Will the next 45 years return 11.999% in the S&P 500? Your guess is as good as mine.
What I do believe is that investing is the best way I know how to keep up with and beat inflation … I am unapologetically pro-investing!
Thank you for trusting my team and I to help you navigate your financial wealth. It is an honor we take very seriously.
Please let us know any way we can support you on your journey.
Make it a great week ahead.