Of Inflation and Investments

Of Inflation and Investments

My recent post about inflation got me thinking about holding cash versus investing. The image above demonstrates the extraordinary effects of inflation and investing. The black line shows the deteriorating effect of inflation on $1 and the red line shows the wealth generation of investing $1 – both over a 100 year time period. The $1 held in cash deteriorated from possessing a purchasing power of $20.52 in 1914 to just $1 in 2014. In contrast, a $1 invested in the S&P 500 in 1914 grew to $15,197.23 of purchasing power in 2014. In a nutshell what does this mean? Like a previous post I had titled Why You Need to Invest Your Money… you need to invest your money!

4 thoughts on “Of Inflation and Investments

  1. Point taken and well illustrated I might add!

    Thankfully we have done that. We are currently on a 5 year debt repayment timeline. But we do have our investments and are still contributing to them. These should all dovetail nicely together at the end of 5 years and then my husband can retire.

    1. Thanks for the comment debt debs. I’m glad you enjoyed the post. Your 5 year plan looks great, looking forward to following your journey!

  2. Well said!!! Many people have no knowledge about stock market and many other people scare to jump into the investing world. Leverage is the key to wealth because inflation will take care of the debt value.

    1. I agree that financial education is severely lacking and there are a lot of misconceptions about investing among people. It’s important to learn how to safely navigate the world of investments because there are great rewards for those who do.

      Maybe it’s just my personal style, but I am allergic to debt. I can totally understand how leverage (through margin) can enhance returns and open up opportunities, but I think I’ll be going the old fashioned way of just investing with the cash flow I generate through work!

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