Money secret No. 10: Money-gobbling inflation

Many people fear investing because they think they could lose their money in it. What many people don’t know is that money that sits there in a bank account is guaranteed to lose value. The reason why is inflation. To put it simply, it’s the opposite of compound interest, as instead of multiplying your money, it eats up its value. In the last 40 years, average inflation in Germany has sat around 2%. This means that your money loses 2% of its purchasing power every year.

Take this example: You have 100 euros today and would like to buy an awesome kitchen device for 100 euros. You decide to put it off a while longer. Now let’s think about this: Next year, this cool machine is going to cost 102 euros due to inflation. What’s frustrating is that if you just kept your money and didn’t invest, you can’t afford this device anymore.

Money secret No. 10: Investing is the best way to outplay money-gobbling inflation. If you get a 7% return on your investment, you beat inflation by 5%. That’s a nice slice of the pie you get to just enjoy.