Inflation and the Illusion of Safety

This chart brings back some memories. In 1971 I was a pre-teen growing up in Houston, Texas.


I remember my parents buying a brand-new Toyota Corolla and paying in the $3,500 range. What does a Toyota Corolla cost today? Really makes things real for me when I think it through like that.

Admittedly, that was almost 50 years ago and since then cars have not just gone up in price, they have also increased in sophistication with advances in technology. You get a lot more “car” today than you did back then.

The point is, prices of everything keep going up. Thus, your cost of living goes up as everything you use and consume costs more.


So many investors today are fearful of market volatility. Especially after 2008 and the financial crisis, investors have been waiting for the next major market sell-off. While waiting, the US stock market has been on what is now officially the longest “bull market” in the history of US markets.

When you’re afraid of market volatility you tend to keep your money in places you think are safe. One of the biggest perceived ’safe’ money places is in US banks. Trillions of dollars are sitting on deposit at US Banks today and much of that money is there due to fears about market volatility. Investors will gladly accept returns on this cash of 0.10% to 2% just to know their principal is protected by the full faith and credit of the US Government.

However, this is an illusion of safety. Inflation is ongoing. Today the 30-year average inflation rate sits around 2.6%.  So, if you want to just keep even with inflation your money must be earning, after-tax, at least the inflation rate.

Inflation is silent and changes gradually over time. Just like a tree growing in your yard. You can watch it all day and not see it grow, but it’s growing. You know it is and if you take a picture of it one year ago, then another today you can see the growth. Inflation is just like that.

So, the illusion is that your money is safe in the bank. The reality, however, is that the cost of everything is going up and your money is falling in its purchasing power. You are losing money in the form of purchasing power if your money isn’t growing at least as fast as inflation.


In addition to inflation, we are also witnessing a rapid lengthening of life expectancy in the West, especially for people who are well-educated, have access to good health care, and lifestyle options. We’re told that biomedicine technology is likely to accelerate this trend. Some bold prognosticators in biomedical fields are saying in 20 years you may be healthier at age 80 than you were at age 60 due to medical tech advances on the horizon.

Who knows if these predictions will come to pass, but one thing is a pretty sure bet in my opinion: Boomers money will need to last longer and earn above inflation rate returns in order to maintain their standard of living.

You can design an investment plan that does not ignore the reality of inflation. There are many ways to protect your principle as an investor while still giving yourself a chance to earn returns above inflation. You just have to explore your options and make sound decisions.

Find a good Advisor to help you think this through. We are always an option but talk to someone who knows their stuff and you can trust. This is an important thing to get right and there are no ‘do-overs’ for people who wait too long to make the right decisions.

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