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The Power of Investing: How it Shapes Your Purchasing Power

The Power of Investing: How it Shapes Your Purchasing Power

May 01, 2024

Preserving Wealth: The Imperative of Investing in the Face of Declining Purchasing Power

In today's economic landscape, the erosion of purchasing power (the ability of currency to buy goods and services) is a looming reality for many individuals and households. The value of the US dollar, once considered a stronghold of stability, is gradually diminishing over time. As prices rise and the cost of living escalates, it's becoming increasingly evident that simply saving money isn't enough to secure one's financial future. This is where the necessity of investing comes into play.

The chart below illustrates two significant trends. The red line depicts the diminishing purchasing power of $100,000 over 30 years since 1992, ultimately it would now only be worth $46,000 today. While the dollar value didn’t change, the buying power is significantly lower. Conversely, the blue line represents the growth if the same $100,000 had been invested in the S&P 500, it would have grown to approximately $2 million over the same period.

 

Investing is not just a tool for building wealth; it's a means of safeguarding against the devaluation of currency and maintaining purchasing power in the long term.

The Inflation Conundrum

Inflation is the silent thief of wealth. It eats away at the value of money over time, reducing what your dollars can buy. While the US Federal Reserve aims to maintain a target inflation rate of around 2%, the reality often exceeds this mark. Over several years, this effect compounds, meaning the impact of inflation becomes more significant as time goes on. Historically, inflation rates have fluctuated, sometimes significantly, devaluing stagnant cash holdings such as savings accounts.

Check out more inflationary metrics HERE

The chart below illustrates the compounding effect of the Consumer Price Index (CPI), which tracks the fluctuations in prices of goods and services. Over the past three decades, prices have surged by more than 100% compared to their 1992 levels.

The Role of Investing

Investing provides a hedge against the deterioration of purchasing power. Unlike cash, which depreciates in value over time, certain investment vehicles have the potential to outpace inflation and generate real returns. Stocks, bonds, real estate, and commodities are among the assets that historically have offered protection against inflationary pressures.

Building Wealth Through Compound Growth

One of the most powerful aspects of investing is compound growth. By reinvesting earnings and allowing investments to grow over time, individuals can exponentially increase their wealth. Compound interest works to counteract the effects of inflation, helping investors stay ahead of the curve and preserve their purchasing power.

Taking Action Today

The urgency of investing in the face of declining purchasing power cannot be overstated. Every day that passes without taking steps to protect and grow wealth is a day lost to inflation's corrosive effects. Whether through retirement accounts, brokerage accounts, or other investment vehicles, individuals must prioritize building a diversified investment portfolio.

In a world where the value of currency is constantly diminishing, investing is not just an option; it's a necessity. By strategically allocating funds to assets that have the potential to outpace inflation, individuals can safeguard their purchasing power and build a more secure financial future. The time to act is now, as the longer one delays, the greater the risk of falling behind in the ongoing battle against inflation. Embracing a proactive approach to investing is the key to preserving wealth and achieving long-term financial stability in an uncertain economic landscape.


Maverick Wealth Advisors provides all investment advisory services through Concurrent Investment Advisors, LLC, an SEC Registered Investment Advisor. Concurrent Investment Advisors d/b/a Maverick Wealth Advisors are not affiliated companies.