Measuring Wealth : Nominal vs. Real

How can you measure wealth if the fiat currency measuring stick is melting?

Using a measuring stick can be a very tricky concept in the inflationary money printing haze.

30 years ago everyone wanted to be a millionaire and a being a millionaire was a rare achievement that signified financial freedom. Today the measuring stick has changed and a million dollars doesn't have the same purchasing power it did 30 years ago.

The price of homes in the Greater Toronto Area has increased dramatically over the last decade moving from $685,000 (2015) to $1,253,500 (2024). Today, being a millionaire doesn't enable you to purchase the median detached home. Interestingly, the 182% nominal increase in residential real estate over the decade was not enough to keep up with the inflation. 

If we change the measuring stick and instead use Gold Ounces, Bitcoin or the SP500 it is clear that the real value of a GTA home has declined significantly over the last 10 years.

In 2015, you were able to trade the median detached home for 500 Gold Ounces. Ten years later the median detached home is only worth 350 Gold Ounces a 28% decline.

Similarly, you were able to trade the median detached home for 2500 shares of SPY in 2015 and ten years later it is worth significantly less.

Bitcoin has the most shocking chart as you were able to trade the median detached home for 1151 Bitcoin in 2015 and the house is only worth 16 bitcoin in 2024 which is a 99% decline.

If we zoom into a five year time horizon you were able to trade the median detached home for 86 Bitcoin in 2019 and now the median detached home is worth only 16 bitcoin in 2024 an 81% Decline.

What lessons can we learn from this?

1. The real estate market felt like an amazing run over the last 10 years however the nominal gains were not real purchasing power increases.

2. Nominal /= real value. Inflation makes the world harder to see.

3. Change your measuring stick to Gold/Bitcoin/SP500 in order to measure the change in global purchasing power.

4. Save in Gold / Bitcoin / SP500 in order to increase global purchasing power over time.

5. Assets priced in Canadian Dollars are a derivative of Canadian currency and at further risk of debasement.

   (TSX / Real Estate / Bonds)

6. Diversify into global assets rather than just Canadian derivates/concentration.