Inflation risk has been called the silent risk because it erodes the value of every investors portfolio regardless of the investment choices made. In simple terms, inflation is the sustained rise of the price of goods and services and inflation risk is the chance that an investment won't grow quickly enough over time to meet an investors objectives.
As an investor you must be aware of your actual rates of return. Unfortunately, most investors only examine their nominal rates of return and forget about their purchasing power, altogether. The nominal rate of return is the actual growth rate of your money while the actual rate of return is the growth rate of your purchasing power. For example, if a money market fund earns 4%, the nominal rate of return, but inflation is running at 2%, your actual rate of return, therefore, your purchasing power has only increased by 2%.
Please review the attached charts so you can better understand how inflation erodes your purchasing power and affects the rates of return on the Dow Jones Industrial Average and the Waverley Research Selections.