Understand the real purchasing power of money over time.
See how inflation erodes purchasing power — or how much something will cost in the future.
US historical avg: 3.0–3.5% · Recent (2022–2024): 4.5% · Fed target: 2.0%
If your investments return 6% per year and inflation is 3%, your real return is only ≈3%. A savings account earning 1% during 3% inflation means you're actually losing purchasing power every year. Beating inflation is the minimum bar for any investment strategy.
The Federal Reserve aims for 2% annual inflation as the "Goldilocks" target — low enough that prices feel stable, but high enough to discourage hoarding cash and encourage investment and spending. When inflation runs hot (like 2022's 8%), the Fed raises interest rates to cool it down.