Inflation - Historic Impact on Investments
Inflation - Historic Impact on Investments Definitions
- Total inflation
- The total cumulative impact of inflation for the time-frame you have selected. To calculate total inflation, we use the Consumer Price Index (CPI) as reported by the Federal Reserve of Minneapolis (www.minneapolisfed.org).
The underlying data supplies an annual CPI rate and a base amount which represents the relative purchasing power for that year. For example, in 1980 the base amount was 82.4 compared to 224.9 in 2011. In this example, $224.90 in 2011 would have the same purchasing power as $82.40 in 1980. The calculations use the base amounts to calculate the difference between any two years. There are small data discrepancies and loss of precision through rounding in the underlying data supplied by the Federal Reserve. These discrepancies can cause differences between the annual change in base amounts and the stated CPI rate for any given year.
- Starting year
- The initial year to start your inflation adjustments.
- Ending year
- The final year to adjust for inflation. The final value is always calculated for the end of the year you select.
- Starting balance
- The initial amount you hypothetically had invested at the beginning of the start year. We adjust this amount annually for the Consumer Price Index (CPI) as reported by the Federal Reserve of Minneapolis (www.minneapolisfed.org).
- Expected rate of return
- The annual rate of return you expect for your variable annuity. This calculator assumes that your return is after taxes and is compounded annually. The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending December 31st 2018, had an annual compounded rate of return of 12.1%, including reinvestment of dividends. From January 1, 1970 to December 31st 2018, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.2% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and/or investment companies may charge.