Inflation and your investments: what you need to know

How inflation erodes wealth

With 3% annual inflation, the purchasing power of $100,000 falls to approximately $74,000 in 10 years. So keeping money in a savings account that yields 1% effectively loses value in real terms.

Better Inflation Hedges

• Stocks — Historically outperform inflation for long periods
• Real Estate — Property values and rental income often rise with inflation
• TIPS — Treasury inflation-protected securities adjust with CPI
• Commodities — Gold, oil, and agricultural products often rise during inflation
• I Bonds — Government savings bonds with inflation-adjusted interest rates

The Real Yield Formula

Real Yield = Nominal Yield × Inflation Rate. If your portfolio earns a 9% return and inflation is 3%, your real return is 6%. Always think in real terms, adjusted for inflation.