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Purchasing Power of the US Dollar

Purchasing power of US Dollar

The consumer price index which is a governmental measurement of changes in the prices of goods and services has been on a steady decline since 1967 due to the impact of inflation. 

The consumer price index or purchasing power, is a very important factor when looking at the value of your investment portfolio.  If you compared two investors, both with $1,000,000 in liquid assets, but one lived in 1968 and the other in 2020, their stories would be quite different.  The 1968 investor had purchasing power of $0.96 which means his million dollars could purchase around $960,000 worth of goods and services.  The 2020 investor however, only has purchasing power of $0.13  which means his million dollars can only purchase around $113,000 of the same comparable goods and services.

Here are a couple real life examples. The median price of a new home in 1968 was $20,100. The median price of a new home in 2020? $334,000! That is a change of 1561%! A new car in 1968 would set you back on average $2,800. In 2020, it’s $38,635 for a change of 1270%.
You might be saying “well the average household income was much lower back than as well”, and that is most definitely true. In 1968 the average household income was $7,700 compared to $67,500 in 2020. That’s still a huge change of 776%, but it’s nowhere near the % change we have seen in the cost of goods and services.
Another way to look at it is back in 1968, the median home cost 2.6 times your average household income. In 2020, its 4.9 times the average household income.
Take a look at just how quickly the US dollar has declined in value since we started tracking the consumer price index in 1967.
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