The Overlooked Risk for Long‑Term Investors: Inflation’s Power

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By: Oliver Rahman

One important factor in investing that long‑term holders often overlook is inflation’s power. I built a small simulation (non-Monte Carlo) to model how net worth grows over time when you factor in monthly contributions, market volatility, and inflation. The interesting part was seeing the difference between nominal growth (what your portfolio says on paper) and real growth (what your money is actually worth after inflation). The gap gets larger over a longer period of time. This graph displays compound growth over 20 years with inflation randomly generated each year between 1.5% and 3% (conservative to moderate assumption).


It's a good reminder that compounding works both ways. Your investments compound, but so does inflation. So, if you enter in values such as 10% growth a year, factoring in inflation to make that growth 8% will give you real values, and help you prepare for your future financial goals/retirement with more confidence! Big thanks to Jason Krzymianowski for inspiring me to delve deeper into the topic.

If you want to see the code, and input your own values, you can visit the Pastebin with my python code: https://lnkd.in/e-EXBhet You can then change the numbers to your liking and see how your net worth would change over time. You can also adjust the scales of inflation and other data used from your personal expectations. I tried to use values closely aligned with averages seen today, but you might have better data.



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