What does “adjusted for inflation” mean and how are they related to investment portfolios?
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Inflation is the value of a dollar getting lower with time. You always hear people talk about the time gas was a quarter a gallon, or how you could buy a pack of gum for a nickle. Well, because of inflation, now it costs $3.25 a gallon and a dollar for a pack of gum. There are more people, more companies generating more money. More money = the value of money goes down.
So when they adjust for inflation, it means they’re showing you all the numbers based on how much the dollar costs *today*, so that you have a direct, easy-to-read comparison.
For instance, say someone is saying “this cost $50 in 1950 and $300 in 2021”. If it’s *not* adjusted for inflation, then you might think that the value of the investment really went up quite a bit since 1950… But when you *do* account for inflation, you’ll see that that 1950’s $50 is actually worth $542.70 in 2021. So when you adjust for inflation, you see that investing in whatever that was in 1950 would have actually resulted in a *loss* of value, assuming you just bought $50 of whatever and never touched it again.
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