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An important, and sometimes misunderstood, item impacting investment returns is inflation. Investment returns require a common basis for measurement which in our case is the dollar. As a paper currency, the dollar has no fixed value except a promise by the government to pay you its current purchasing power. Throughout history, the “market value” or purchasing power of all currencies has declined (in many cases quite severely). Inflation is the measure of that decline in purchasing power or currency debasement. A 10% return is excellent if inflation is 2%, but poor if inflation is 9%.

Much of what is said and written about investing is speculation. This is the natural result of the shortterm focus of our emotions and the financial news. Even the rate of return one has achieved in the past several years is just a moment in time relative to one’s long-term investment horizon. Realistically, anyone trying to assess investment returns will want a history of at least five years, and preferably ten, to begin the task.