Posts with keyword purchasing-power→

(This post is a part of the series on Basics of Finance and Investing.)

You have bought a 1-year CD for $10,000 at 5% interest rate. After one year you collect $10,500 – a gain of $500. What is your real gain? This depends on what $10,000 can buy one year later, compared to what it does now.
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No matter how often they have been talked about, some threats are so creepy they are worth telling again. Inflation is dangerous not only because it damages your retirement savings, it works so quietly that you may not even notice, until after retiring when you begin to dip into your nest egg.
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(This post is a part of the series on Basics of Finance and Investing.)

The short answer to this question is that we should invest to be able to shift our purchasing power from the high earning phase of our life to the low earning phase. Many of us earn more than we need to spend in our working life (note the italic – some of us spend more on our wants rather than our needs). It is the exact opposite when we retire – we spend more on our needs than we earn. Therefore, we must have adequate funds available when we retire to live out the rest of our life.
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  I am a scientist working in a US university, and I also study the dynamics of financial markets and their impact on our financial health. More...

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