Returns After Inflation

“So how has your stock portfolio done the past ten years?”

” Well, not good but after the run-up this year, not bad. I think I’m about even.”

The Dow Jones index is about the same as it was 10 years ago, a fact that might mislead some investors into thinking that they have broken even during the past decade. They would be wrong. Adjusting for inflation, the Dow is down about 25% over the past ten years. Think that’s bad? Fly across the pond to Europe and look again at the U.S. market. In Euros, the Dow has lost 25% in nominal terms since 1999 without accounting for inflation. If we adjust for inflation … well, we better not. It’s too depressing.

Returns on any investment have to account for inflation, which averages about 3% over the past several decades.

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