3 Things 10-6-25

 Thing One

The Savings and Inflation Relation(ship)

Savings accounts and high-yield checking accounts certainly have their place in a sound financial plan. They offer liquidity, stability, and easy access to funds for emergencies or short-term needs. But the truth is, the modest interest they provide rarely keeps pace with inflation. For example, if a savings account pays 1% annually while inflation runs at 3%, the real rate of return is actually -2%. That means your money is technically shrinking in terms of what it can buy, even though the balance on paper appears to be growing. Over time, this erosion quietly but steadily eats away at wealth.

The implications are sobering. Let’s say you have $10,000 in a savings account earning 2% per year. In ten years, you’d have about $12,200. But if inflation averages 3% annually, the cost of goods rises so much that those dollars will only buy what about $9,000 buys today. In other words, despite “earning interest,” you’ve actually lost purchasing power. This explains why many savers feel like they’re running in place financially, never quite able to get ahead, even when they consistently add to their accounts.

To combat inflation, investors often look to equities—shares of ownership in companies—as a practical solution. Historically, the U.S. stock market has returned an average of 7–10% annually after inflation. While there are downturns, over the long term, equities have consistently outpaced rising prices. Unlike savings accounts, which guarantee a slow erosion in value when inflation is high, equities offer the chance not only to preserve purchasing power but to grow wealth meaningfully.

For the more experienced or adventurous investor, selecting individual stocks can be an exciting and potentially lucrative approach. For example, an investor who purchased Apple stock ten years ago would have seen gains of more than 1,000%, far beyond the pace of inflation. Of course, the flip side is the risk: poor stock selection or sudden market shifts can wipe out gains quickly. This strategy demands research, discipline, and the emotional resilience to endure volatility.

On the other hand, many investors prefer a steadier and more diversified route: mutual funds or exchange-traded funds (ETFs). These allow you to own a basket of stocks, reducing the risk of being overly exposed to a single company. For instance, the S&P 500 index fund has returned roughly 10% per year over the past 50 years, compared to average inflation of around 3%. That difference—7% real growth—compounds dramatically over decades, transforming modest contributions into substantial wealth.

Ultimately, the question isn’t whether to abandon savings accounts or high-yield checking. These accounts are still vital for emergency funds and short-term expenses. The real issue is recognizing that long-term wealth cannot be built in vehicles that lose purchasing power year after year. By combining the safety of cash reserves with the growth potential of equities—whether through carefully chosen stocks, mutual funds, or ETFs—you protect your money from the silent thief of inflation and set yourself up for financial resilience in the future.

Thing Two  

The Real Estate Alternative

Real estate has always been viewed as a can’t miss investment. It’s tangible, it provides utility, and for many families, it represents both a home and an asset. The perception is that “land never loses value” and property is the surest way to build wealth. Add in the possibility of rental income and tax breaks, and it’s no wonder so many people assume real estate is the best investment over time.

But the data tells a different story. Over the past 100 years in the United States, residential real estate has appreciated at about 4–5% annually in nominal terms. After adjusting for inflation, the real return has been closer to 1% per year. That means, in terms of purchasing power, housing has grown very modestly. To put numbers on it: a $100,000 investment in a broad measure of U.S. housing in 1925 would be worth roughly $2–3 million today. But after stripping out inflation, that wealth is far less impressive than it seems on paper.

By contrast, equities have historically delivered far higher returns. The S&P 500 has averaged about 10% annually over the past century in nominal terms. After inflation, the real return has been around 6–7% per year. Compounded over a century, that makes a massive difference: a $100,000 equity investment in 1925 would be worth well over $50 million today in real terms. In other words, stocks not only keep pace with inflation, they also multiply wealth many times over.

The gap is explained by growth dynamics. Real estate is bound by land scarcity and local demand; while valuable, it doesn’t generate productivity on its own. Stocks, on the other hand, represent companies that innovate, expand, and benefit from global economic growth. Firms like Apple, Amazon, and Microsoft didn’t just preserve value—they created new wealth on a scale far beyond what real estate appreciation can achieve.

That doesn’t mean real estate has no place. It provides diversification, a hedge against certain types of inflation, and steady rental income. It can also offer psychological comfort: you can live in a home, rent it out, or use it as collateral—benefits equities don’t provide. Still, when measured strictly on real returns, real estate lags behind equities by a wide margin.

“It doesn’t matter how smart you are unless you stop and think.”

Thing Three

Just A Thought  

“It doesn’t matter how smart you are unless you stop and think.” - Thomas Sowell