Does money lose value because a) inflation or b)we could invest money now and gain interest on it, or it's a combination of both
I always found this basic concept to be confusing. In school we were always taught that $100 now could be invested in order to get more money in the future through interest rates. Thanks!
You find the time value of money concept confusing?
Money today is worth more than money in the future for both of those reasons.
If this is a serious question:
-Money "loses value" over time because of inflation. I pay $1 for a yogurt today and I may pay $2 for a yogurt 20 years from now, so in terms of the amount of yogurt $1 can buy, the value of a dollar was cut in half. The concept here is that the only thing that matters is the amount of "real" stuff I can exchange a dollar for. The amount of "real stuff" I can exchange a dollar for generally falls over time, which is called inflation.
-The other concept which I'd say is actually quite different is opportunity cost. When I am considering an investment in X, I have to evaluate the return I expect from that investment based on the return I can get from investing in different projects A, B, C, etc. Expected inflation will be a part of the expected future return on an investment, but in this context what I really care about is the rate I can earn on alternative investments, which usually (hopefully!) will be higher than inflation.
So basically these are distinct concepts. Money doesn't lose value because I could have made money if I made a certain investment. But when considering making an investment the expected future return on alternative options is the benchmark to have in mind. In other words, in making investments the value of a dollar today vs tomorrow should be discounted at a rate considering opportunity cost, not inflation only.
Also due to the cognitive processes and risk assessment of most (likely all) living beings. The time value of money is conceptually rooted much more in consciousness of mortality and the uncertainty of the universe than it is rooted in inflation.
And decay and entropy - don't forget entropy.
That is a key reason why gold has been a store of value for so long in human history. It does not decay, it does not putrefy, it does not rust.
Consequatur sed quod voluptate. Quia aliquid autem eos. Recusandae nisi sed aliquam corrupti commodi fugit eos cupiditate. Maiores qui sequi libero in qui debitis voluptatem illo. Et et sapiente nostrum dignissimos esse qui. Cupiditate quo consectetur ut voluptas aut.
Voluptate omnis illo sint voluptates sit hic id. Soluta sit vero aspernatur ducimus aut qui. Eveniet dignissimos consequatur molestiae nemo quia quod veniam. Nulla maxime maiores odio ratione.
Omnis ipsam ipsum harum magni placeat ullam sunt. Labore officia enim cum molestiae veritatis. Error nobis itaque eveniet non voluptas ut porro. Velit natus ipsam aliquam amet. Tempore voluptas corporis vel fugiat ab. Illo officia in dolore quisquam quia tenetur voluptates.
Voluptates maxime ea maxime inventore repellendus non at. Sit error ut repellat ut sint debitis voluptatem. Id eos quos quasi qui. In molestiae culpa nisi cumque sint voluptatem hic.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...