Inflation: Silent Confiscation of Wealth

Get out of paper money and into real assets. That's been the rallying cry of those who have questioned the established order. Bitcoin enthusiasts, in particular, like to talk about the “debasement trade,” referring to the erosion of a currency's value.

Whether Bitcoin really is a good alternative to traditional money is something I have my doubts about. A limited supply of 21 million bitcoins is simply not enough to convince me.

Old Wine in New Bottles

The erosion of a currency's purchasing power is nothing new. Take the world's largest economy, which also has a long history of economic data: the United States.
According to officialdata.org, the average annual inflation rate over the past 100 years was 2.99%. That adds up to a cumulative loss of purchasing power of 94.8%. Things look even worse in the United Kingdom, with average annual inflation of 4.47% and a total loss of 98.7%.

And what about good old Switzerland? Aren't the Swiss the very embodiment of monetary stability? According to the Swiss Federal Statistical Office, the price of a representative basket of goods and services rose by a whopping 593.7% between September 1926 and September 2026. That translates into average annual inflation of 1.96% and a loss of purchasing power of more than 85% over 100 years. Better than the 98.7% in the United Kingdom, but a far cry from actually preserving purchasing power.

I don't think I'm going out on a limb by predicting that money won't buy more in 100 years than it does today. Cash in the bank is therefore the best way to store money we'll need tomorrow. But when days turn into months and years, a loss of purchasing power becomes virtually guaranteed. The safest place to keep your money becomes the surest way to lose its value, so to speak.

Cash Is No Long-Term Solution

Despite all this, the Swiss and the British have become wealthier in real terms on a per capita basis. That's because money invested in productive assets has managed to withstand the erosion of purchasing power. Stocks remain the best way to put money to work. For substantial fortunes, rental properties in prime locations are also worth considering. Even gold is better than leaving money sitting idle in a bank account for years. Gold may be unproductive, but at least its supply cannot be expanded without limit.

For most people, the right mix of assets is the best way to reach their financial goals. And Gutmann is happy to help you find that balance.