The Illusion of Wealth & How to Beat Inflation: A 100-Year Perspective
We tested 30 ideas about how to beat inflation against 100 years of US money supply data, from gold and housing to savings, the S&P 500 and Bitcoin.
Topic
The 6.56% Rule: The Hurdle Every Investment Faces
The 6.56% rule is the single most important number in our research.
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It is the average annual growth of the US M2 money supply over the last century, and when we lined every asset up against it, those compounding above 6.56% gained ground and everything below it lost, with no exceptions in 100 years of data.
The part people tend to miss is that compounding alone does not get you there. Savings compounding at 3.4% still lost about 95% of their purchasing power. The assets that cleared the bar were the S&P 500 with dividends reinvested, real estate and farmland with their income reinvested at about 9.3% a year, and corporate bonds, which only just made it at 6.4%.
- 6.56% Average yearly M2 growth The hurdle rate an investment had to beat to keep its share of the money pool.
- 3.4% Average savings return Savers lost about 95% of their purchasing power over 100 years.
- 1,027x Berkshire Hathaway, 1965 to 2025 M2-adjusted, compounding at 19.8% a year.
Articles on 6.56% Rule
1 article from our research on this topic.
Plain-English definitions
Key terms for 6.56% rule
- The 6.56% rule 6.56% a year
- The average annual growth of US M2 over the last century. Assets compounding faster gained ground, slower ones lost it. More about The 6.56% rule
- CAGR
- Compound annual growth rate: the steady yearly rate that would turn the starting value into the ending value over the period.
- Total return
- Price growth plus every dividend, rent payment or coupon put back into the investment, as opposed to price alone.
- M2 money supply
- The Federal Reserve’s measure of cash, current accounts and easily accessible savings in the US. We use it to see how quickly new money is being created.
FAQ
Questions about 6.56% rule
Answers drawn from the figures in our research. Educational only, not financial advice.
Where does the 6.56% figure come from?
It is the average annual growth rate of US M2 across the century covered by the series, during which the money supply went from $43.7 billion to $22.8 trillion. Part II, which uses annual data from 1926 to 2025, puts the average slightly higher at 6.66%, and the difference comes from the period and method rather than from a disagreement in the data.
Which investments beat the 6.56% rule?
Over the long run, the S&P 500 with dividends reinvested, US small caps, rental property and farmland with income reinvested, and, just barely, corporate bonds. Berkshire Hathaway compounded at 19.8% a year for 60 years. In the digital age, Nvidia at 36.2% a year since 1999 and Bitcoin, which beat M2 in 11 of 12 five-year windows since 2010, have cleared it by much wider margins.
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