Purchasing power

Working knowledge

A balance of $100,000 held for twenty years is still $100,000. Whether it is still worth $100,000 depends entirely on prices in the meantime.

The Bureau of Labor Statistics publishes a calculator that converts a sum from one year into another year's dollars. It is the standard reference, and it measures an average basket rather than your household's costs.

Advanced

Real return is nominal return minus inflation. An account paying 2% while prices rise 3% is losing 1% a year in real terms, compounding quietly.

Index construction matters: substitution, hedonic adjustment and shelter weighting all affect the reported rate, which is why serious people argue about CPI without either side being dishonest.

Professional practice

For a multi-decade horizon, sequence and tax treatment change the outcome as much as the gross rate. After-tax real return is the figure that should drive an allocation.

Assets with no yield — including physical metal — must be assessed on what they preserve, not on income they do not pay.

Worked examples

Check it yourself: enter a sum and two dates in the BLS calculator. Doing this once tends to change how a person thinks about long-term cash.

Where people go wrong

• Judging safety by the account number rather than by the real value.
• Assuming any single asset reliably offsets inflation. None does reliably.

Related claims we have checked

• “My money is safe in the bank because it is FDIC insured.”