This was a pivotal week for every investor. Interest rates went up to a 22-year high. Inflation dipped to a 2-year low, but remained above 4%. And the S&P 500, NASDAQ and Dow industrials all gained ground. Why are stocks going up when the world feels miserable?

The question contains its own answer. People are buying stocks because only stocks have a reasonable shot at staying ahead of the Fed and inflation over time. They can drop a scary amount in the short term but they usually move up in the long term at a healthy rate.

That’s important. Real investors know that in an inflationary environment their money needs to work harder simply to maintain its existing purchasing power. As dollars get smaller, you need to stretch them out with profit just to stay where you are . . . never mind building wealth or otherwise getting ahead.

The bar is basic. If you haven’t earned more than 4.1% in the past year, you’ve fallen behind. Every dollar you started with is now worth 4.1% less than it was last summer.

A year ago, 10-year bonds paid maybe 2.78% in annual interest, so you’d be up 2.78% in the past year to partially balance the bite of inflation in the meantime. You’ve already lost about 1.3% . . . and even if the Fed wrestles inflation back down to 2% in the immediate future, across a decade that minimal drag means you’ll end up with only 5-6% more than you started with.

That’s not much, especially if you were hoping to use the money to pay the bills or the government forces you to take a required distribution every year. And unless inflation really craters, that’s the maximum you can hope to achieve.

You would’ve been better off last year in gold or the S&P 500. Both kept up with inflation. But of course, the S&P 500 can go down as well as up. If you were scared of taking a loss, the inflation rate effectively guaranteed that you’d lose ground anyway.

If your investments don’t at least give you the chance to keep up with inflation, you’re locking in a loss. In order to get ahead, you need to take a risk.

That sounds incredibly counterintuitive a year after risk assets were completely savaged. But remember, before the Fed started moving, the stock market was doing too well for a lot of people’s comfort. The S&P 500 had come too far, gotten ahead of the underlying businesses it represents.

But when it dropped, it didn’t drop all the way to zero. Those who bought early took a step back, but held onto a lot of accumulated profit. And now, over a year into the tightening cycle, the fundamentals have finally caught up with a lot of these stocks.

Here’s the thing: the fundamentals tend to keep getting better. Companies get bigger over time. When an individual company doesn’t grow, management changes and the new team tries different things. Sooner or later, they either succeed or the company vanishes from the landscape altogether.

That’s the risk we all take when we bet on a company. In the worst-case scenario, it can drop to zero, go bust. That’s why everyone knows never to bet everything on one company. If the risks go against you, you lose everything.

But with multiple companies, most if not all of them will survive. You’ll still have something to show for your initial investment. Over time, the right management team will either figure out a successful business plan or take a buyout from someone who can make something out of this company. Shareholders will move forward.

And over a long enough timeline, most companies will make more than 100% for their shareholders. It only takes 10% a year compounded for about 7 years to make that happen. Since before the Great Depression, that’s roughly what the S&P 500 has returned in the long haul, so investors with a long-term view can expect to do better than doubling their money every decade.

Guess what? Every stock that survives that long is not going to be a 100% loss, because to drop that far, you basically can’t survive as a publicly traded company. But in 6-7 years, the survivors can easily be up more than 100%.

With those parameters, the total losses average out against the big wins to produce a net profit. You’ll make money.

Of course there will be good and bad phases in that cycle. We’ve just gone through a bad phase. There will be others. But the good times overshadow the bad ones.

All you need is the nerve to embrace the entire cycle. If you’re nervous, you don’t have to play the market as a whole. Pick steadier stocks that might not have the room to rally, but at least they rarely drop much either.

But if you aren’t beating inflation, you’re giving up on all that. Money under the bed is theoretically “safe.” But it can’t grow.

In a world where money is on fire, you need to at least keep up with the economy as a whole. Stocks can do that. In history, they’ve done that.

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