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StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The amount of goods and services your money can buy. Inflation reduces purchasing power over time.
Why It Matters
Purchasing power is why investing matters. If you keep $100,000 in a savings account earning 1% while inflation runs at 3%, you're losing 2% of purchasing power every year. After 20 years, your $100,000 buys only about $55,000 worth of goods. Investing in stocks historically outpaces inflation, preserving and growing your purchasing power over time.
Key Points
- At 3% inflation, prices roughly double every 24 years — $100 today buys what $50 bought in 2000
- Real return (return minus inflation) is what actually grows your purchasing power
- Stocks have historically returned about 7% after inflation — the best long-term hedge against purchasing power loss
Related Terms
Common Questions
The amount of goods and services your money can buy. Inflation reduces purchasing power over time. Purchasing power is why investing matters. If you keep $100,000 in a savings account earning 1% while inflation runs at 3%, you're losing 2% of purchasing power every year.
Purchasing power is why investing matters. If you keep $100,000 in a savings account earning 1% while inflation runs at 3%, you're losing 2% of purchasing power every year. After 20 years, your $100,000 buys only about $55,000 worth of goods. Investing in stocks historically outpaces inflation, preserving and growing your purchasing power over time.
At 3% inflation, prices roughly double every 24 years — $100 today buys what $50 bought in 2000
Real return (return minus inflation) is what actually grows your purchasing power
Stocks have historically returned about 7% after inflation — the best long-term hedge against purchasing power loss