Inflation

You put ten thousand euros aside, in a safe. It earns nothing. And you never touch it.

Twenty years go by. You open the safe again.

There's still ten thousand euros. Exactly the same number. Yet you've lost three thousand two hundred and seventy euros.

Your money hasn't changed. What changed is the price of everything else.

Bread, rent, coffee, a train ticket. Everything went up a little every year, without warning.

On average, two percent a year. It's so small you never feel it.

But two percent, twenty times in a row, doesn't add up to forty percent.

So how much is it?

About forty-nine percent. Something that cost a hundred euros now costs a hundred and forty-nine.

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Sound familiar? It's the same mechanism as compound interest, but this time it works against you.

Your money hasn't moved by a single cent. The floor is what moved up.

This is what one euro is really worth, year after year.

After twenty years, sixty-seven cents are left. Your ten thousand euros now buy only six thousand seven hundred and thirty euros' worth of things.

So the right question isn't "how much does it earn?"

It's "how much does it earn, minus inflation?" That number is called the real return.

An account paying one percent while prices rise two percent: that's minus one percent in real terms. You lose a little every year.

And here's the surprising part.

Doing nothing looks like the safe choice. But it's the only investment you know for sure will lose.

Your ten thousand euros after twenty years, in real buying power. Under the mattress: six thousand seven hundred and thirty.

In an account paying one percent: eight thousand two hundred and twelve. Better, but still less than you started with.

Invested at seven percent: twenty-six thousand euros. Same money, same time. The only difference is what you did with it.

The risk of doing nothing is invisible. It shows up on no statement.

Nobody will write "you lost about two hundred euros this year". The number on your account won't move at all.

Inflation is the quietest tax there is. You don't pay it, you just go through it without seeing it.

Keeping your money safe doesn't mean letting it sleep. It means making it run at least as fast as prices.