You’re being robbed by a stealthy thief and you don’t even know it. Let’s learn how. Then we’ll help you get on top of this problem.
In the past month, you had a number of routine monthly bills to pay.
Those might have included your electricity bill, internet bill, car payment, property tax bill, rent or mortgage payment, insurance bill, and more.
But there’s one “bill” that you’re paying every month of your life since childhood. Yet you didn’t know it because you’ve never seen a monthly statement for it. Your invisible bill that you’ve never seen is…
Your “inflation bill.”
Inflation is why you paid 25 cents for a pack of Wrigley’s gum when you were a kid, and you buy the same pack for $1.29 now.
Look, I already know that you’re an investor.
How do I know? Because everyone is an investor. You’re investing your time reading this right now.
As an investor, you need to know about more than simple Return On Investment (ROI).
What’s your “real” ROI? That’s your ROI when you consider inflation.
I’m constantly floored at the number of investors that don’t consider inflation’s diluting effect on their investment returns. Maybe that’s because no one’s ever seen a bill for it. Inflation is cloaked and veiled as “invisible.”
Inflation is an increase in the currency supply. This results in your diminished purchasing power over time. A dollar today might have the purchasing power of just 95 cents next year.
What’s your “real ROI” versus your “nominal ROI”? Real vs. Nominal refers to whether or not your return is inflation-adjusted.
“Real” accounts for inflation.
“Nominal” does not; it means “in name only.”
Let me give you an example. If you invest $100,000 and in a year it appreciates to $105,000, you may very well have just eroded your wealth.
You read that right. That $5,000 gain just diminished your prosperity.
How in the world could that be true?
Your ROI is 5% in the example. Well, that’s only a “nominal” ROI. It isn’t adjusted for inflation. Again, nominal means “in name only.”
Let’s say that inflation was also 5% during that year. (The true rate of inflation is typically higher than what the government reports.)
Well, if you now have 5% more dollars but the purchasing power of all of your invested dollars is diluted by 5%, then you don’t have any more prosperity than when you initiated your investment.
It diminishes pesos, yen, and renminbi just the same.
That’s bad enough. Well, I guess it could be worse.
Unless you’re tax sheltered, the IRS charges you capital gains tax on your “nominal” gain of $5,000.
You see, taxation is not adjusted for inflation.
You must also pay tax on your $5,000 gain, shaving it down to an effective $3,750 gain at a 25% tax bracket.
So your after-tax gain on your $100,000 investment is just 3.75%. Inflation was 5%.
You just lost prosperity. The dollar’s diluted purchasing power exceeded your return.
Look, it’s hard to state how important this is. This is exactly the reason that people think they’re getting ahead. In reality, they’re either treading water for decades, or even falling behind.
Even if your stock return is 10% and inflation is 5%, your “real” ROI is merely the difference, 5%. You’re barely getting ahead.
This is why there’s a retirement crisis in the U.S. and many developed nations.
What’s the solution? Invest in a multi-dimensional investment class like real estate where you have five profit centers at the same time. This way, inflation-adjusted (real) returns of anything less than 20% is actually disappointing.
That’s why I often write about real estate, and spend so much time talking about it on the Get Rich Education podcast.
Quit investing in buy-and-hold stocks for the long-term. Just stop it. If you do what everyone else does, you’ll only have what everyone else has.
Effectively, the stock market has to hit a new high every day just to keep up with inflation.
Investment managers don’t want you to know this because they’re paid a percentage of funds they hold under management.
You’re being robbed by a stealthy thief. It’s stealing your future lifestyle, experiences, and opportunity. The stealthy thief is an invisible tax, named “Inflation.” Now that you’re aware of it, learn how to get on top of it.
Here’s to your education and success!
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