The (almost) invisible threat to your finances, and the life it is suppose to fund
The coffee can full of $100 bills buried in the back yard is the safest investment available, right? Not really. The assumption is that the number of dollars contained in the can will not rise, or more importantly, fall. Right? Kind of. The number of bills is fixed, but the price of what they will purchase is going up everyday. Those pieces of paper are not intrinsically very valuable.
Whether it is tennis shoes and cheerios, golf clubs and sails or cruises and plane tickets, they are all subject to inflation. Inflation has averaged a bit more than 3% annually in the long run. Just 3%. No big deal. Those cheerios that costs $2.99 today will cost about a third more ten years from today ($3.89). In 20 years, twice as much, ($5.98) and in 40 years, the price will have quadrupled to $11.96!
Viewed another way, that coffee can lost 3% of its value each and every year. A CD earning 2% only lost 1%. Not as safe as it might seem.
To be sure, assets which are intended to fund expenses which may well occur in the relative nearer future need to stay in a more liquid, stable asset form, where the impact of inflation is less pronounced because of the shorter time period.