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What Should I do with My Money?
By John | March 14, 2010
What should I do with my money? Interest rates are low. Inflation is low. Should I be investing in stocks? How about bonds? Money market funds? Bank CDs? Real estate? Precious metals?
I have very strong opinions about these questions. First, it is difficult to answer these questions without facts, and the “facts” being supplied by U.S. Government agencies are very suspect. Take inflation. For investment purposes, when we ask what the rate of inflation is, we really want to know the rate at which the value of the dollar is changing. We aren’t asking how much prices of goods and services are changing. That is a separate issue. When the government reports changes in the consumer price index, a proxy for inflation, that tells you little about the true decrease in the value of the dollar. And when we attempt to learn of the dollar’s change in value be looking at currency exchange rates, that is like measuring the level of a lake from the side of a boat. All currencies are fiat currencies. All currencies are depreciating in value.
The U.S. Government cannot continue to create new dollars – dollars that have not been earned, but only printed – without degrading the value of all dollars. If you really believe inflation is now subdued, you just don’t get it.
The dollar is our currency. We use it as a medium of exchange to acquire goods and services. We use it to measure value, as everything is priced in dollars. There is a third function of a currency: a store of value. In today’s world, we need to use dollars for the first two functions, but not the third.
Dollars are steadily declining in value. You need to keep some dollars to support transactions. However, you do not need to keep dollars as a store of value. Your “savings” must be in non-dollar denominated assets. To preserve your purchasing power, and to avoid the inevitable collapse of the currency, you must store your savings in real, hard assets.
I would avoid bonds, bank CDs, money market funds, and anything dollar denominated. You could, and probably will, receive the exact return contractually called for. In dollars. However, there is no assurance those dollars will have purchasing power anywhere near the purchasing power you gave up when you invested in these vehicles.
Precious metals and real estate are reliable stores of value. Some will point out that these items fluctuate in value. I think that is a misrepresentation of reality. The dollar is fluctuating in value. Precious metals and real estate are retaining value.
How about stocks? They seemingly exist in a very liquid market, and you own a percentage of an underlying company that produces something of value. However, there is so much evidence of market manipulation that I would be reluctant to own stocks in this environment.
Keep enough currency available to support anticipated transactions. Keep some precious metals in the form of spendable coins, as you may need them to support transactions if the dollar and other fiat currencies become unacceptable in the marketplace. Put your long term investments in real estate, but avoid leverage, and don’t rely on tenants that might not be able to pay their rents during a currency crisis.
I continue to believe the best long term investment you can hold in this environment is land. Try to get land that generates income, such as farmland. Make sure you can cover carrying costs. After this next currency crisis, your land will still be there; still in demand. Will your other investments still have value?
Topics: Commentary, Rural Land Investment | 1 Comment »
May 24th, 2010 at 2:41 am
Investing is my way of earning money both online and offiline, right now i am into venture capital.`–