Are you saving dollars? Do you think that's wise? Do you actually think that the interest you're earning on your dollars exceeds the inflation and capital gains tax it's exposed to?
I'll tell you: it doesn't.
I can wow you with actual charts and data to prove this, instead I'll do it this way....
1950. If I guy had $100,000 in cash he was 'rich'. Your house would cost about $5,000, your car $500, and a weeks worth of groceries could be had for under $5.
2009. A million in cash is no longer even viewed as 'rich'. Your house is worth about $500,000, your car $50,000, and a weeks worth of groceries is anywhere from $100-$300.
The cost of those items has not gone up, they are not worth more, the value of the dollars we buy them with is deteriorating. We're taught to get a good job, and save for the long term... putting away a few thousand a year into an RRSPs in the hopes that we'll have a nice amount saved up for retirement. (I AM an advocate of RRSPs but for a different reason, I'll get to that later)
The problem; is that even if we do save up $500,000 for retirement, what will that be worth at that point??? According to history, $500K when us twenty-somethings are sixty, will have the buying power equivalent to about $5,000 today. The argument to save cash for retirement is laughable.
According to any savings calculator it would take you 47 years to save up $500,000 by putting away $300 a month. Now that's based on an annual rate of return of 4%. Pretty average, it's actually even more than most see on their savings accounts, GICs, bonds etc.
Now here's the kicker - inflation is a steady 3% (and rising every year) meaning that your dollar is losing it's buying power year over year. So as you gain 4%, inflation eats 3%, tax eats at LEAST 1%, leaving you with ....nothing. Literally.
And that, is why the majority of Canadians retire broke, working for an entire lifetime, only to end up relying on the government to pay their bills. Pathetic.
Then there's the Investors.
Unlike 'savers', investors turn their dollars into assets. They invest in wealth building ideas, businesses, machines, strategies, tools, plans, people, places, commodities... I could go on. The one thing they do not invest in, is dollars. And for good reason.
I want to tell you about Gold. In 1809 you could buy a fine suit with one ounce of gold. OR, you could have paid for that suit with about $1.
In 2009 you can STILL buy a fine suit with ONE ounce of gold.... OR, you could have paid for it with over $1,000.
As I write this on November 16th, 2009, Gold is trading hands for over $1,100
You see, Gold has maintained the same purchasing power for hundreds of years, while the dollar has seen close to a 1000% decline in buying power. If history repeats itself, you'll be paying $5,000 for that Hugo Boss Suit in 2029. As governments print more fiat currency, the value of those currencies will inevitable decline more and faster.
Here is a very interesting chart. It shows the relationship of gold to the US financial markets during the 2008 market crash:
(Price of Gold in blue, and the S&P in red, Dow in yellow and Nasdaq in green)
I think that pretty well sums it up. The reason gold is over $1,100 today is not because it's 'worth more', it's because it takes more dollars to buy it today, than it did back in 2001 where $290 could buy an ounce... Investors ran to gold, as their equities plummeted and the fear of a softening dollar became a reality.
I'm using gold just as an example. The same could be said for land, or Oil, or almost any other tangible commodity. They aren't skyrocketing in value like everyone thinks, the dollars that buy them are just weakening, so it takes more of them to buy!
Hope this makes sense.
Back to my point, dollars are not something you want to hoard. There are several other vehicles that will treat you MUCH better in the long term. Just think, had you bought up some raw land, oil drilling contracts and a few hundred ounces of gold in 1983 with only $200,000, you could have sold and retired in 2003 with over 2 million dollars. If you would have saved those dollars instead, and made 4% interest on them, you'd have to wait over 60 years to get that same 2 million.
The Rockefellers and Buffets of the world aren't billionaires because they saved dollars, they are billionaires because they invested their dollars into real assets.
Go invest in something 'real' today :D
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