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%.
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