Stocks vs Inflation: Does the Stock Market Beat Inflation? Avoid the Savings Trap
We test whether the stock market beats inflation once money printing counts, using the S&P 500's 468x rise since 1926 and savings that fell to 4.3 cents.
Topic
Wealth Preservation: Why Holding Cash Falls Behind
Preserving wealth turned out to be harder than we assumed when we tested it against the money supply.
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In Part II, a dollar left in a savings account in 1926 with every penny of interest reinvested grew to $21.68 by 2025, but it needed to reach $503 to hold its share of the money pool, so in M2 terms it is now worth 4.3 cents.
Shares did much better at holding value, though on price alone even the S&P 500 finished slightly short of M2, at an adjusted value of 0.932. We ended Part II by describing the stock market as closer to a wealth-preservation mechanism than a wealth-creation one, at least until dividends come back into the picture in Part III.
- 4.3 cents $1 saved in 1926 Its M2-adjusted value in 2025, with all interest reinvested.
- 3.17% Average 3-month T-bill rate Against average M2 growth of 6.66% a year in Part II.
- 468x S&P 500 on price, 1926 to 2025 An M2-adjusted value of 0.932, about 6.8% behind M2.
Articles on Wealth Preservation
1 article from our research on this topic.
Plain-English definitions
Key terms for wealth preservation
- Treasury bill
- Short-term US government debt. We used the 3-month T-bill rate as a stand-in for the best safe savings rate available.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
- Hurdle rate
- The return needed just to break even with money printing. In most decades since 1928 it was higher than the yield on safe savings.
- Nominal vs real
- Nominal figures are the dollar amounts you see. Real figures adjust them for something else, which in this research is the growth in M2.
FAQ
Questions about wealth preservation
Answers drawn from the figures in our research. Educational only, not financial advice.
What is the safest way to preserve wealth against money printing?
Our data does not point to a safe option in the usual sense, which was one of the more uncomfortable findings in Part II. Cash and savings lost most of their value relative to M2, and even the S&P 500 on price came in about 6.8% behind. The ways we found of keeping pace all involved holding a productive asset and reinvesting its income for a long time, which brings volatility with it, and that trade-off is something each person has to weigh for their own circumstances.
Why do savers lose purchasing power even when rates look good?
A rate of 4% or 5% can look generous when official CPI inflation is targeted at 2% to 4%, but the average safe rate over the last century was 3.17% against M2 growth of 6.66%. A saver was falling about 3.48% behind each year, and over a century that compounds into the 4.3 cents figure above.
Sources