What is Inflation?

Quick Definition

Over time things gets more expensive. A dollar today can buy less stuff than a dollar 30 years ago, and it can buy more stuff than a dollar 30 years from now. Inflation means the purchasing power of a dollar is decreasing over time.


There are multiple proposed explanations for why inflation happens. The most generally accepted definition is currently the monetary definition. That states inflation occurs when the money supply (the amount of currency in the economy) goes up faster than the number of products sold in an economy. For example: Say there is 4 units of product being sold and there is 4 dollars within the economy. Each unit therefore costs on average 1 dollar. If the number of units double to 8 units and the amount of money triples to 12 dollars, than each unit on average costs 1.5 dollars. Deflation (which can occur, but it is very rare) happens when the opposite happens (the number of products being sold goes up faster than the money supply).

Why inflation matters

Inflation erodes the buying power of the currency you possess. The money you have in your wallet or purse gets continually less valuable every second that passes. The money you have in your bank gets continually less valuable as well (bank interest is not large enough to counteract inflation). Money that is invested has a chance of keeping up with or growing faster than inflation. Money that is not invested is a guaranteed loss.

Illustrative Story

Imagine keeping water in a tank that has a hole in the bottom. Even though no one is using that water, eventually all of it will leak away. The water is your money, and the tank is your bank account/wallet. For example: Say you have 1 dollar in your wallet and the inflation rate is 2% per year. In one year that dollar will effectively be worth only 98 cents. In another year it will only be worth 96.04 cents and so forth.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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