That is a very controversial statement.
But, hold your horses, don’t take out your gun yet, calm down. Let me explain.
You do not need to be a financial guru to understand this.
If you are working to earn money and you do not understand what to do with it once you have got it, taxes are not the only thing that will hurt you.
How could you destroy your money by saving it?
A lot of people believe cash is the best asset to have at a time of recession and that might be true. But what after?
You must have heard this term countless times –
Yeah yeah we have heard it a lot of times, inflation is bad for you, inflation destroys you, but HOW?
Okay, consider this –
Remember as kids, we went into a store with 5$ and came out with hands full of stuff? How about now? Would you get the same stuff? NOPE.
That is what inflation does. It destroys your buying power.
Okay, got it. Inflation – BAD.
But how is inflation brought into existence?
The best example we can find would be the current economic issue with the US economy. the economy has taken a huge hit below the belt and the government has taken steep measures to “revive” the economy.
What are these measures? Stimulus packages.
What good are the stimulus packages? They are like cars filled with confetti.
TRILLIONS OF DOLLARS – LITERALLY PRINTED FROM DEBT to provide support to the economy.
So, the economy has had an almost V shaped recovery. The question here is –
Is this recovery sustainable? What are the ramifications to printing trillions of dollars from debt?
Think… from the perspective of supply and demand.
Whenever there is more quantity of a product in a market? The prices go down.
So, what happens if there is more money in circulation? The value of the same money falls. More people have more money and are therefore willing to pay more for the same goods and services. That is how, the people “passively” aid inflation.
So, what the Government has basically done is, laid the groundwork for another bout of glorious inflation to take place over the next few years.
The value of the currency could be going down and down and down. But, again, the dollar is the currency of the world. So, that factor might help the dollar stay away from devaluing. So they are safe – maybe?
But what of the rest of the world? Printing money is the easy solution not available to the rest of the world! Governments have to decide between – letting the economy suffer or risk devaluing their currency.
What could be done to avoid this inflation trap?
There is actually nothing you can do to stop the devaluation of your money. What you COULD do is make your money grow.
Well, you see, it is not about how much you save,
How much you make matters a lot (even though some people might not agree)
Which means, how much of your money is growing?
Growth comes in many forms, you have to choose the most sustainable option.
What I mean is, you could use many different asset classes to put your money into and wait for growth.
There are umpteen financial instruments in the world. The presence of so many financial instruments is what makes the markets so difficult to manoeuvre.
So, what could anybody with no financial knowledge do here?
Well, first off, stop blaming the education system for giving you useless information – there are numerous resources available online.
Second, you could stick to basics.
A wise man once told me – “Remember, the more the complexity of a financial instrument, the more likely it is a shell.”