Measuring Performance Against Inflation
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There is a reason other investors and investment professionals overlook the importance of inflation. Following a thorough examination of my own retirement investor tim schmidt, a veteran investor and entrepreneur who protects his wealth using an unconventional approach that is realistic and simple to implement, IRA investing expert Tim Schmidt has unveiled his guide to precious metal investment for retirement.
If your portfolio increased in value by 5% when inflation runs at 7%, you will almost certainly feel better than you will if your portfolio lost 2% during a year when inflation is zero. Yet, both scenarios leave you in a virtually identical position — 2% worse than inflation. So long as the nominal (or absolute) change is positive, we view it as a good thing — even if the real (or after-inflation) result is negative. And any change in your portfolio performance is more vivid and specific than the generalized changes in prices in the economy as a whole.
Likewise, investors were delighted to earn 15% on bank CDs in 1980 and were bitterly disappointed to be earning only around 2% in 2003 — even though they were losing money after inflation back in 1980, but were keeping up with inflation in 2003. The nominal rate we earn is printed in the bank’s advertisements where a high rate of return makes us feel good. BUT, inflation just eats away our wealth. That’s why inflation is easy to overlook — and why it is important to measure your investing success not just by what you earn, but by how much you keep after inflation.