In contrast, the total
return — or unadjusted return — on large-cap
stocks during the same time period of 1926 to 2003 was 10.4% compounded
annually, while the inflation-adjusted return was 7.2%. That means
that a dollar invested in large-company stocks in 1926 would have
been worth $2,284.79 before inflation but $222.23 in terms of
actual purchasing power at the end of 2003.
As you can see, inflation can have a major impact on investment return. If you expect your portfolio to grow, you’ll need to invest in securities that have a good chance of outpacing the average yearly inflation rate of 3% per year.
Jeremy Siegel, The Wharton School
Jeremy Siegel of The Wharton School explains how stocks can help offset the impact of inflation.
The focus of every long-term investor should be the growth of purchasing power — monetary wealth adjusted for the effect of inflation. It is clear that the growth of purchasing power in equities not only dominates all other assets but is remarkable for its long-term stability.
On average, the purchasing power of assets invested in the stock market has doubled every ten years. Based on returns of the last 75 years, it would by contrast take 40 years to double one's purchasing power in bonds and 120 years to do so with Treasury bills.
Jeremy Siegel, The Wharton School 