I was looking at the hourly wages at my job back in 1992 in an old contract. When you adjust the hourly wage to 2016 dollars, there has literally been no real – i.e. inflation adjusted – growth in the hourly wage for over 24 years. What you could buy with an hours’ worth of work back in 1992 buys you the same amount of goods with 2016 dollars. Or put another way…
Ah, inflation. No, not the big bang, universe expansion type. I’m talking more the kind that can make a loaf of bread cost over 5 billion dollars; the kind that compounds your money the wrong way; the kind that will make you poor if you’re not aware of it. Monetary inflation is a fascinating topic, and one that is supremely important for you to grasp if you are going to grow your wealth. This is a great video on inflation. Watch it. It is excellent.
If you haven’t noticed, I have a bit of an obsession with inflation (evidence here, here, and here). It is my greatest fear as an investor. I found some old one dollar bills from back in 1973. I knew it was time for another lecture on the dangers of inflation. I’m going to explain what Cash: The Loser’s Game means.
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!
$5 billion. Five billion dollars. $5,000,000,000.
The heartbreaking irony when I was holding this $5 billion bill was that it wasn’t even enough to buy a loaf of bread.
We were nervous going into Zimbabwe. We were only going to Victoria Falls, a tourist city located just 40km away from the western border between Namibia and Botswana. But it was the summer of 2008. There was bloody political violence over the elections in the spring of 2008. Thousands of Zimbabwean refugees had illegally crossed into South Africa to escape the political violence. I witnessed the refugee camps that sprung up in Cape Town. Things got violent in Johannesburg; Zimbabwean refugees were necklaced there. Our guide told us that we would be safe. We weren’t so sure.