The American Empire in a Changing World


Monday, June 25, 2012

''How You’re Getting Fooled By Inflation''

From ETF Daily News

''Let’s say you had the good sense to put $1,000 into the S&P 500 in 1998, when it sat at 900.
Today, that $1,000 investment would be worth close to $1,500 – a solid 50% gain in 15 years. Not bad. That’s an annualized gain of just under 3% – which today looks pretty darn attractive.

However, if you account for inflation, you’re barely in the black. $1,500 today is worth about $1,060 in 1998 dollars. So your 50% gain has been whittled back to a 6% gain after inflation.

But hold on. It gets worse…

Because if you sell your $1,500 position today, you’ll be taxed at the capital gains rate of at least 15%.
15% of your $500 gain is $75. Now your $1000 investment is only worth $1425 after taxes (assuming you don’t pay more – which you probably do).

$1,425 in 1998 dollars only comes to $1,010 and change.

There go your profits, because after taxes your real gain is whittled back to $10 in 1998 dollars – or just a 1% gain on your initial investment!''

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1 comment:

  1. That's how Governments have always pay there wars.

    Debase the currency = Debt never repaid in constant dollars.

    The Bonds are guarantied but in a different currency valuation then when they where issued.