Lesson One · Real Return
A 7% return in a 5% inflation world is a 2% return.
Stage 1 ended on inflation eating cash. Stage 2 starts on the same idea applied to investing: every return number you see is a number. The one that actually grows your purchasing power is the — what's left after inflation. A bond paying 5% during 5% inflation grows nothing real. A stock returning 8% during 3% inflation grows 5% real. Investing is about clearing the inflation hurdle by enough to compound.
“The market's job isn't to give you a big number. It's to give you a real one.”