“Inflation: The Silent Tax”
“Inflation is a tax on financial assets. This tax is paid by those unlucky investors, corporations, and foreign central banks that hold financial assets denominated in the currency that is inflating. A simple way of thinking about inflation as a tax is to consider investing in a mutual fund. The fund manager might charge 1 percent for the service and privilege of providing the investments in fund form. If the fund returns 5 percent, the investor would obviously receive a net 4 percent. However, if the inflation rate was 4 percent, the real return to the investor would actually be nothing. In this case, the Fund manager gets his 1%, the U.S. Treasury – with the help of the Federal Reserve – takes 4% because of inflation, and the investor is left with nothing, except, of course, a tax bill for his 4%. After taxes, the investor actually lost money! Inflation is a silent, and extremely efficient, robber of value.” Read more.
Richard Benson
