Inflation: The Tax You Never Voted For

Mar 7, 2025 8 min read

Patrick

“Those who invest can lose, those who don’t invest have already lost”

– Alex Hormozi, serial entrepreneur and author

arvy’s teaser: Inflation is the tax you never voted for, silently eating away your wealth. Holding cash feels safe, but it’s a guaranteed loss over time. The only way to fight back? Own assets that rise with inflation.

Inflation.

It is the silent tax.

Nobody wants to pay it. But we all have to.

Inflation means that the prices of things like food, rent and clothes slowly rise over time, so you need more money to buy the same goods. Think about your health insurance or your favorite croissant – mine has gone from CHF 1.20 to CHF 2.80 in the last 15 years, an increase of 5.81% per year – from the bakery next door. Prices go up every year, but the service or product remains the same.

Inflation occurs for two main reasons: too much money and higher costs. When people have a lot of money to spend, companies raise prices because they know that customers can pay more. And when products become more expensive to make (e.g. due to higher wages or material costs), companies raise prices to keep making profits. That’s it.

Inflation is not all bad. But it is advisable to position yourself wisely against this invisible enemy.

Let’s see how.

Chart 1: Inflation, the silent tax that slowly but surely eats up your money

Source: Hedgeye

Cash is a silent wealth killer

Let’s eat the frog first and confront ourselves with the inconvenient truth: your beloved cash under the mattress or in the savings account is not the solution. Cash is a silent wealth killer in the long run.

Wait, what?

But everyone told me that saving money is a good thing! After all, everyone says cash is king!

Yes, cash is king, but only in the short term. Many consider cash to be the safest way to preserve wealth, but it’s not.

Before anything else: your time horizon is important. If you’re planning a big expense in the next three to five years, such as buying a house, a car or traveling the world, cash is the best option.

But if you have much more time and your “emergency fund” of 3-6 months’ expenses as a cash buffer that you must not touch, then a closer look at the data shows the opposite.

Cash loses value over time due to inflation. The result is the so-called loss of purchasing power. I would therefore like to briefly remind you why holding a lot of cash is not an option, even in the current uncertain times.

Here are the hard facts: The average inflation rate in Switzerland over the last 50 years has been between 2-3%.

Doesn’t sound like much, does it?

See chart 2.

Ouch!

At 2%, your CHF 100 is only worth CHF 54 after 30 years, and CHF 36 after 50 years. At 3%, it’s only CHF 40 and CHF 22 for 30 and 50 years respectively. This means that holding cash for decades not only reduces your purchasing power. You also have a significant opportunity cost. You could have fought back by taking part in the huge growth potential offered by the stock markets.

So investing is the solution.

Let’s see why.

Chart 2: What your CHF 100 will be worth after 50 years with an inflation rate of 2 or 3%

Source: arvy

Companies Can Pass on Inflation

But why does investing work? How do the businesses I own cope with inflation?

Investing works because businesses can raise their prices when inflation goes up, which helps them keep making profits. If you own a good business, it can charge more for its products, adjust wages, and manage costs to stay strong – even when prices rise everywhere.

A prime example is Hermès, a company we own.

The company makes the famous Birkin bag. For example, the Birkin 30 Togo edition cost $11,600 in 2023, $12,500 in 2024 and $13,300 in 2025. This means that they have increased prices by around 7% every year for the last three years. At the same time, however, they also recorded strong sales growth of 15 %. In other words, business was good despite the price increases!

By comparison, inflation over the same period was around 3 to 4 %.

This is called pricing power. When companies can pass on inflation-related cost increases to consumers without suffering a loss of revenue.

What does this look like in the long term if I invest in stocks?

Chart 3 clearly illustrates the power of equity investments. Over the last 30 years, the inflation-adjusted return on the S&P 500 has been an impressive +960% – 10 times your capital! This is the real return – adjusted for inflation. The nominal return – not adjusted for inflation – would be even higher at over 2,000% – i.e. 20x on your capital. In contrast, the purchasing power of cash has fallen dramatically. Over the same period, the value of the US dollar has fallen by over 53%.

Expressed in figures: your $10,000 would be worth $106,000 today if you invested it, whereas it would be worth $4,700 in cash.

Yes, you read that right.

This stark difference underscores why cash can be a “safe haven” in the short term.

In the long term, however, it is a certain destroyer of value.

And stocks are the clear winners.

Chart 3: Inflation adjusted return of the S&P 500 vs purchasing power of USD (30 years)

Source: Charlie Bilello, Creative Planning

Your best friend is time

I understood the message. But what should I do as an investor?

Think long-term. Your best friend in investing is time.

Investing is inevitably a long-term game.

Here’s an incredible fact (chart 4): In the past 150 years, there hasn’t been a single 20-year period where investors lost money. No matter which day you invested, after 20 years, you would always have made a positive return. And that’s even after adjusting for inflation!

That’s amazing!

But over the years, you will have to deal with many headlines, reasons to sell, crises, emotions and decisions. During this time, sticking to your investment plan is easier said than done. You can take my word for it.

This is where we at arvy come in with our investment app and the idea with which we founded our company. We do this together and will inform, educate and even entertain – investing and numbers don’t have to be boring😉 – along the way. And with full transparency, you always know what you own, why you own it and what’s happening.

So, if you’re in your 30s or 40s and have amassed some savings, it’s up to you to let time be your best friend and not your worst enemy.

In your savings account, compound interest is working against you – silently eating away at what you’ve worked so hard to build up. In your investment account, on the other hand, compound interest works for you – it unlocks growth and unleashes its true power over the years to come.

The decision couldn’t be clearer. Don’t wait.

Let time work for you – starting today.

Chart 4: Total real market returns, 1871 – 2022