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Money 101 · Episode 12
Look... my mother sold an apartment for €50,000 and put the money in the bank. The bank paid 3% interest. She thought she was being responsible. Five years later that apartment was worth €75,000. Her savings had grown to €57,000. She did not make a bad decision. Nobody told her that inflation was running faster than her savings account the entire time. Quietly. Invisibly. Every single year.
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Not financial advice. For educational purposes only. I am not a financial advisor. Always do your own research and consult a qualified advisor before making investment decisions.
Look... my mother sold an apartment for €50,000 and put the money in the bank. The bank paid 3% interest. She thought she was being responsible — she was not spending it, she was not gambling it, she was keeping it safe. Five years later that apartment was worth €75,000. Her savings had grown to €57,000. She had not made a bad decision. Nobody told her that inflation was running faster than her savings account the entire time. Quietly. Invisibly. Every single year.
"That is what inflation does. And it is happening to most people right now whether they feel it or not."
Look... inflation is the rate at which the general level of prices for goods and services rises over time — which means the purchasing power of money falls. If inflation is 4% per year and your savings account pays 2%, you are losing 2% of your real purchasing power every year. The number in your account grows. The amount that number can buy shrinks. That is the invisible tax on savings that nobody teaches.
Mike's Mother — The Real Numbers
Apartment value after 5 years
€75,000
+€25,000 gain
Bank savings after 5 years
€57,000
+€7,000 nominal gain
The "safe" decision cost her €18,000 in opportunity cost — before accounting for inflation's impact on purchasing power.
Look... this is one of the most important distinctions in personal finance. A nominal return is the percentage your money grows before accounting for inflation. A real return is what is left after inflation is subtracted. They are very different numbers.
Historically the most powerful inflation beater over long time horizons. Global equity markets have returned approximately 7–10% annually over the long term — well ahead of average inflation. A low-cost global index fund gives access to this return with minimal fees.
Property values and rents tend to rise with inflation over long periods. A rental property that generates income also benefits from both capital appreciation and increasing rental income as inflation rises. The key challenge is the high capital requirement and illiquidity.
Government bonds specifically designed to rise with inflation — TIPS in the US, index-linked gilts in the UK, linkers in Europe. These provide guaranteed inflation protection but typically lower returns than equities over long periods.
What is inflation in simple terms?
Inflation is the general rise in prices over time. When inflation is at 3% per year, something that costs €100 today will cost €103 next year. Your money buys less over time unless it grows faster than inflation.
How does inflation affect savings accounts?
If your savings account pays less interest than the rate of inflation, your money is losing real purchasing power every year even as the nominal balance grows. This is called a negative real return — and it is the situation millions of savers are in without realising it.
What is the best inflation hedge?
Historically, broadly diversified equity portfolios have been among the most effective long-term inflation hedges, consistently outperforming inflation over periods of 10 years or more. Real estate and inflation-linked bonds also provide protection but with different risk and liquidity profiles.
Is cash a good investment during inflation?
Cash loses purchasing power during periods of inflation. While an emergency fund in cash is sensible and necessary, holding large amounts of cash long-term during inflationary periods results in a guaranteed negative real return. The risk of not investing often exceeds the risk of investing.