Inflation
Inflation is the rate at which the general price level rises over time. As inflation rises, each dollar buys less than it used to.
Why it matters
- Inflation quietly erodes the purchasing power of cash and low-return investments over time.
- Long-term investors often need some growth-oriented assets (like stocks) just to keep pace with inflation.
- Retirees are especially exposed to inflation risk since a fixed income buys less each year prices rise.
Simple example
- At 3% annual inflation, prices roughly double every 24 years.
- $100 of groceries today might cost roughly $134 in 10 years at 3% average annual inflation.