March Newsletter

IT IS IMPOSSIBLE TO FIGURE OUT THE ANSWER TO ANY problem or situation until you’re sure you’ve got the question framed correctly.

In a lifetime of investing, the essential question is “What is risk?” And an awful lot of people go wrong assuming that there are only two states in which their money may be found at any given moment. One is at risk, which they define as being exposed to the volatility of the stock market. And the other is safe, meaning that it has been removed from stocks and placed in cash, money market funds, bonds and other debt instruments.

The premise of this viewpoint is that there is really only one risk, that being loss of capital. But for the long-term investor—seeking a dignified and independent retirement—there’s another risk. And in the long run, it is perhaps even more perilous, simply because it’s historically more probable. That risk is erosion of purchasing power.

Put as simply as possible: what if the essential financial risk of a three-decade retirement isn’t so much losing one’s money, but outliving it?

Over the last hundred years or so, the Consumer Price Index has increased at about three percent. At that rate, compounding for 30 years, consumer prices will rise nearly two and a half times during a two-person retirement. Or, if you prefer, a dollar will lose up to 60% of its purchasing power. Either way you express it, by year 30 the retiree will need something like $2.45 of income simply to afford what one dollar buys today.

To the extent that investors consigned their retirement capital to debt instruments they defined as safe—that is, whose income stream and ultimate return of principal were credibly guaranteed by the borrower—their income will most probably have failed to keep up with inflation.

For example, 30 years ago in March 1996, the 10-year U.S. Treasury note—which may be said to form the basis for the whole panoply of fixed income investments—yielded 6.3%. Today it yields less than 5%, suggesting that the interest from a portfolio of debt instruments —

For the long-term investor, there’s another risk. And in the long run, it is perhaps even more perilous, simply because it’s historically more probable. That risk is erosion of purchasing power.

far from having kept pace with inflation—might actually have declined over this period.

Thirty years ago the Consumer Price Index stood at 156; at year-end 2025 it stood at 326, indicating that prices roughly doubled during this relatively quiet three-decade period. But the fact that living costs rose only 2X rather than the trendline 2.5X was presumably cold comfort to the retiree whose “safe” portfolio’s income may not have increased at all.

The cash income from “risky” equities meanwhile distinguished itself by not merely rising, but doing so at a rate considerably greater than inflation took one’s purchasing power away. The S&P 500’s dividend in 1996 was $14.89; in 2025 it was $78.51. That’s right: during 30 years when the CPI cost of living about doubled, the cash dividend of the S&P 500 more than quintupled.

(I’d almost rather ignore how the S&P 500 Index itself actually performed over these three decades, because—in addition to fearing that I might be piling on here—the price performance is in a very real sense irrelevant to the point this little essay is laboring to make. But the fact is that the Index ended 1996 at 741. As I write, it has closed at about 6,800. That’s right: even assuming you were taking all your dividends in cash, your capital multiplied about nine times. And I remind you that, well within these three decades, the S&P 500 Index halved not once but twice. Now, please try to ignore this so I can finish making my point.)

My point is simply that there is no such thing as no risk. The choice is: on which end of your investing lifetime do you want your insecurity, so that you can have security on the other end.

You can enjoy blissful emotional and financial security on this end of your investing lifetime—right here, right now. Choose a couple of money market funds, a six-month bank certificate of deposit, Treasury bills and perhaps even some very high-grade corporate bonds maturing in the next few years.

The number of dollars of capital you have may barely fluctuate at all. You’ll get a little bit of current income, much of which will be wiped out by inflation and current income taxation. But you’ll sleep like a baby. Of course, one day—and that day may not come for a number of years—you may notice that you’re running out of money, in terms of your most basic income needs. Thus: perfect security on this end of your investing lifetime; gnawing insecurity (if not crisis) on the other end.

Alternatively, you could elect to take your insecurity on this end by investing in equities. If you add a bit of exposure to small-company stocks and/or the tech-heavy Nasdaq—which historically fluctuate more widely than has the S&P 500, and thus have provided higher long-term returns—you can increase your insecurity on this end even more. Your account values may bounce around all over the place, as they surely have these 30 years past. Terrific insecurity on this end of your financial life—

historically rising income and capital values considerably beyond inflation at the far end.

Safeguard the number of currency units—paper dollars—you have now; risk your purchasing power deep into retirement. Or risk the number of currency units you have now seeking to safeguard (and perhaps even increase) your purchasing power—aka “money”—years and decades from now. There is no such thing as no risk. There’s only the choice of what to risk and when to risk it.

Be assured that I chose to illustrate this with statistics from the last 30 years purely for immediacy and relevance to your real life. By all means, sit with your financial advisor and work this analysis on any and every three-decade period you choose, using the resources itemized below. In broad outline, you’ll find similar outcomes: destruction of purchasing power in fixed income investments; accretion of purchasing power—net of inflation and taxes—in mainstream equities. (Past performance is certainly no guarantee of future results. But the logic as well as the history of these phenomena are on the side of their continuation.)

And perhaps most immediately critical in the real lives of real people facing the longest retirements any generation has ever had: a stream of cash income that has historically risen at a significant premium to the rate at which inflation has clawed their purchasing power away.

© 2026 Nick Murray. All rights reserved. Used by permission.