In plain words
Idle cash loses purchasing power whenever prices rise; only a return above the inflation rate grows what the money can buy. 72 ÷ inflation rate ≈ years for prices to double — and for idle cash to halve in real terms.
Your real return is what is left after inflation: (1 + return) ÷ (1 + inflation) − 1, roughly the return minus inflation. Below zero, your money buys less each year, however the balance grows. The balance counts money; the real return counts what that money can buy.
Two worked examples
The common mistake
The mistake: Thinking money kept as cash holds its value because the number on it does not change.
What’s true: The doubling maths runs in reverse on idle cash — same rule, working against you.
Where you’ll meet it
- A raise below inflation is a pay cutIf prices rose faster than your pay, the same shopping takes a bigger share of it — the number went up, the pay went down.
- Every headline moves your pocketMacro news is a personal memo — every rate or subsidy line lands in somebody's budget, often yours.
- Compounding bites both waysGrowth stacks on growth — the last years of compounding earn more than all the early ones combined.
Related terms
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