Preference for Higher-Return Assets over Cash for Long-Term Savings

Real Rate of Return on US Currency (1900–2020)

Evaluating a Savings Strategy

An individual decides to store $1,000 in physical cash under their mattress for one year. During that year, the economy experiences an annual inflation rate of 4%. What is the real rate of return on this cash at the end of the year?

Purchasing Power of Cash

An investor observes that over the past year, the general price level of goods and services increased by 5%. If this investor had held their wealth entirely in physical currency during this period, which statement best analyzes the change in their purchasing power?

In any economic environment, holding physical currency for a year will always result in a loss of purchasing power.