Lesson 14

Inflation: money loses buying power

Everything slowly gets pricier

At 3% inflation a basket of goods costs 3% more next year. Your money in the account buys less even though the number stays the same.

Real and nominal

Nominal is the number in the account. Real is what you can buy with it. If your portfolio earns 5% and inflation is 3%, only about 2% is left in real terms.