Get Rich with Dividends: A Proven System for Earning Double-Digit Returns

Keeping Up with Inflation

People don’t talk much about inflation these days. Since 1914, the average inflation rate in the United States is 3.4%. In 2009 and 2010, inflation was well below the historical average. The year 2011 saw a return to more normal levels.

Inflation of 3.4% seems pretty tame, especially for any of us who remember the 1970s and 1980s when inflation hit double digits. But even at 3.4%, your buying power is cut in half after 20 years.

Because inflation is low today, people underestimate its erosive powers. Despite the fact that for the past decade inflation has averaged nearly three quarters of a point below the historical 3.4% figure, buying power has still been cut.

What would have cost $1,000 in 2001 cost $1,270 at the end of 2011.

And what if you’re saving for something whose price rises faster than the average 3.4% rate, such as college tuition or retirement (and the associated medical costs)?

For example, in 2011, the College Board reported that tuition at public four-year universities increased 8.3%. And since 2006, it has risen at a rate 5.1% above the inflation rate.

Where are you going to find an investment that will grow 8.3%? Today, if you lock up your money for 20 years in a treasury, you’ll be lucky to get 3% per year.

Let’s see how cost increases could impact tuition fees in the future. Right now, tuition for in-state students at a public university averages $8,244. Private university students are paying an average of $28,500. If those tuitions ...