Most people think a market crash is the biggest danger to investors. Nowhere on your bank or brokerage statement are you likely to get a report on what inflation is doing to the real value of your holdings.
Inflation is the rise in price of goods and services.
To stay even, you must invest at rates of return that at least match inflation rates. Your real rate of return, in terms of buying power of your money, is your savings or investments rate of return less the inflation rate. If inflation is 4 percent per year and your return is 5 percent per year after taxes you have managed only a 1 percent gain in real buying power. If your after-tax return is only 3 percent, you lose 1 percent in buying power. Inflation occurs when demand increases relative to the supply available.