I’ve been reading through my copy of The Single Best Investment (yes, yes, the book is over 20 years old), and on page one, the author Lowell Miller slapped me in the face with a critical reminder. An often overlooked, or do I dare to say purposely neglected by most conservative personal finance writers and investment advisers, is inflation. While some of these facts are dated, some of them are timeless. Inflation compounds.

Since 1945, there have only been two years when inflation has been negative.

Here’s what inflation looks like in real life; you’ll see what compounding seems like in actual terms.

A middle-of-the-line Ford car in 2000 cost $3,500. Approximately 22 years later, the exact vehicle would cost you $6021. This represents a period of higher than average inflation, but even on average, prices will double every 18 years. That is without any other influence.

Since 1945 the Consumer Price Index reports that prices have risen over 900%.

Inflation and Your Portfolio, In Real Terms

This means that if you invested $3,500 in 2000, if that investment is worth $6021 now, pat yourself on the back, you broke even!

What I liked about the author putting this into his investing book was to encourage the average retail investor, his audience, to be more honest about the context of their investments.

It is easy, just as we investors tend to talk up the winners and quietly neglect our losses, to ignore the silent force of inflation when calculating our returns or, even more importantly, goals such as funds needed for children’s college accounts and our retirements.

The next time you’re evaluating an investment, be it stocks or crypto, don’t forget to take inflation into the equation; if you do, you’ll see that these types of holdings, when evaluated within the context of the virtually ever-present monetary force of inflation that we exist with, they will almost certainly lose you money if the actual investment return is unable to outpace inflation.

Thank you for reading, and I hope you have a good rest of the day!

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