Inflation: The Killer of Investment Returns
Posted on | January 2, 2012 | No Comments
We know what inflation is: the rising of prices. If you had $20 today and put it under your mattress, 20 years from now, that $20 would have a lot less buying power. Let’s look at an example. The government tracks inflation in order to make adjustments to Social Security. Its inflation metric is called the Consumer Price Index (CPI). From November 2010 to November 2011, the CPI increased from 218.803 to 226.23, a 3.39% increase. The Vanguard S&P 500 Index Fund (VFINX) returned 5.63% (with dividends reinvested). The real return, after inflation, was only 2.24%.
The nice folks at the PNC Financial Services Group (PNC) have continued the tradition of determining the cost of the 12 Days of Christmas. This year, the cost has increased only 3.5%, in line with the CPI. Remember, last year, the cost increased 9.2% over 2009, and in 2009 it increased only 1.8% over 2008 prices. This year, two turtle doves increased by 25% and four calling birds decreased by –13.3%.
PNC really did a great job on the interactive website this year; I recommend taking some time and playing around with it. Great for little ones!
Link: PNC – Christmas Price Index
Tags: Christmas Gifts • Christmas Price Index • Inflation • PNC
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