Inflation is the gradual rise in the price of goods and services over time. A 100,000 VND note buys less this year than it did last year. Nobody hands you a bill for it, which is why inflation is often called a silent tax — it quietly erodes the purchasing power of every dollar you don’t put to work.
Nominal vs. real returns
If your savings account pays 5% but prices rose 4%, you didn’t really get 5% richer. Your nominal return is 5%, but your real return — what you can actually buy more of — is roughly 1%. Always judge an investment by its real return, not the headline number.
Beating inflation with compounding
The defense against a silent tax is an engine that grows faster than prices. Historically, diversified stock portfolios have outpaced inflation over long periods, turning compounding into your ally. The goal isn’t to avoid inflation — that’s impossible — but to keep your real return comfortably positive.