Inflation: Learning By Example

by David Jenyns on June 8, 2009

As an investor, everyone is interested in the effects of inflation upon his investment program, because he is interested in the preservation of the principal amount as expressed in dollars, which he originally invested, and in the earnings received, which is also expressed in dollars.

Suppose that in 1940 an investor bought a $1000 bond bearing 3 percent interest. The same is true of all other fixed-dollar investments. Life-insurance dollars, when paid upon the death of the insured, may or may not buy as much as the dollars originally invested in the contract. Inflation and deflation are facts of the economy, and investors who wish to see the value of their money increase rather than decrease absolutely must understand these principles.

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