Most Investors completely ignore or drastically underestimate the effect that inflation has on the future value of investments.

  What is Inflation?

(Insert Postage Stamp Graphic)

DEM Stamp	DEM Stamp	Annualized Inflation Rate
$0.10	$0.37	4.04%
1970	2003

In 1970, a postage stamp cost ten cents. Today it costs 37 cents to buy the same stamp to carry the same letter to the same place. That is inflation. To put it simply, goods and services have historically tended to get approximately 3% - 4% more expensive over time.

  Implications for Investors

Because of inflation, investors must realize that the exact same lifestyle that costs $100,000 per year to fund in today's dollars is going to cost $300,000 thirty years from now. The average husband and wife who retire at age 60 have an 85% probability of having one spouse live until age 90. Investors, particularly retirees, need to construct a financial plan that addresses the need for tripling their income during a typical retirement.

Table of Contents | Next Lesson: Bonds = Loaner