Is Your Cash Growing Or Being Eaten Away By Inflation?
Where is your money being kept? Maybe you’re afraid of the stock market (rightly so) and are just stashing cash under your mattress. Well, I’m here to tell you that this might be a bad idea as well.
The government CPI number for February came out at .4%. The CPI is the Consumer Price Index, or the government’s own metric for inflation. I have lots of reservations regarding their inflation index, but I’ll save this for another day (put it this way, whatever they report, I think it is actually a little higher). For the sake of this article, we’ll stick with their reported number.
A .4% inflation for the month of February, if annualized, comes out to 4.8%. Now, what kind of return is your cash generating? 1%, 2%, 3%? You’re still losing money when you factor in inflation.
The scary thing is that this inflation number, which was higher than expected, came during a time when most are fearing deflation. What do you think will happen to inflation when the economy actually picks up and “going out of business” sales are over? Unfortunately, the monetary policies of our government have a great chance of leading to severe inflation.
Sure, the government might succeed in creating a bottom in home values. However, will it be worth it if we have $6 gasoline and it costs a few hundred bucks to buy groceries each week? If the government succeeds in creating a bottom in housing and in the stock market, they will surely also succeed in significantly raising the cost of living in this country. There is no doubt in my mind.
So, what would you rather have? Crappy choice, I know. However, we all contributed to this mess, so we’re in it together.
Back to your cash that is being eaten away by inflation. If you’re like me, you don’t have a ton of money to your name so it is hard to build a complete, diversified portfolio with many positions. If you have $10k or less, you may want to just throw it all in gold. If inflation doesn’t get as bad as I think, well you’ll be fine because your income will support your lifestyle (hopefully). If inflation gets really bad, then at least your savings will hold up just fine.