Everybody wants to keep their money “safe.” But what is “safe” these days? Are stocks safe? Are muni-bonds safe? Is gold safe? I’ve seen many families paralyzed by too many choices and as a result make no decision and just keep their money in a bank account in order to keep it safe. But are dollars safe?
We have an entire asset class of resource stocks or “hard asset” stocks which acts as an inflation hedge. It was with interest therefore that I read Joseph Lisanti’s article in Financial Planning magazine entitled, “Girding for Inflation” in which he wrote:
Anyone who’s bought gas, paid a medical bill or sent a child off to college recently knows that the Consumer Price Index doesn’t tell the whole story of inflation.
For more information on why the CPI index doesn’t reflect actual inflation read my series on how the government under reports inflation.
And if you think inflation isn’t a risk consider this:
Whether you think inflation is here now or is headed our way, planners should prepare for it. Even at an annual rate of 4.5% – the inflation level when President Richard Nixon imposed wage and price controls in August 1971 – prices would double in roughly 16 years.
Losing half your buying power isn’t the intended outcome when storing your money safely in the bank in dollars. I wrote back in 2007 that cash had been the riskiest investment for the prior five year period in which the U.S. Dollar Index had dropped 36%.
Make sure that you aren’t betting everything on the U.S. dollar just to play it safe.
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