How to Really Ruin Your Financial Life and Portfolio by Ben Stein

Author:Ben Stein
Language: eng
Format: epub, mobi
Publisher: Wiley
Published: 2012-08-08T04:00:00+00:00

Chapter 8

Cash Is Garbage—Except When It’s Not

Have you looked at your bank statements or money market account statements lately? It’s mighty discouraging. Basically, you get no interest at all. On some accounts at some banks, you get literally one hundredth of one percent per year to invest with them.

That’s cruel. I can recall back in the early 1980s when you could get 12, 13, 14 percent on fairly short-term CDs. It seems to me that there was a time when some CDs were approaching 15 percent interest. Of course that was when the economy was being choked into submission by Paul Volcker, chairman of the Fed, after a prolonged period of unacceptably high inflation. But never mind. There was a time when interest paid in the teens. It really happened.

So what’s this nonsense about basically no interest on your cash? Why bother to have it there at the bank or money market account at all? Your cash ain’t nothing but trash at these interest rates.

We all know that there are reasons why these current rates are so low. The Federal Reserve is committed to a Zero Interest Rate Policy to stimulate the economy. They buy Treasury bonds in immense quantities to keep the interest rates super low. You cannot fight the Fed and so you cannot search around and find higher interest rates hidden away in some small town where they haven’t heard of the Federal Reserve. These low rates on cash are universal. (Although, life is unpredictable. Even as I am writing this, there are rumblings that the economy is reviving and interest rates might rise by a tiny amount. Stay tuned.)

Ordinary mom-and-pop investors pay the price for these super-low rates. He or she slaves and saves for decades and then gets almost no interest to support him or her in retirement. Again, it is cruel.

Yet, we have inflation. By federal government statistics, we have had between 3 and 4 percent inflation over the last several years. So, if we get .01 percent on our savings, we are actually losing money—and a lot of money at that—if we just leave our money in cash at our local bank or at our national money market fund. (You would think there would be blood in the streets about it, but somehow, there isn’t. The American saver is a fairly passive guy or gal.)

But why play along with the Fed’s silly game? Why not just forget about cash altogether and plunk it down somewhere in the land of juicy returns? There are plenty of places where that money gets a good return either in capital gains or bond coupons.

The stock market staged a stupendous rally from March 2009 to mid-March 2012, rocketing from roughly 6,500 on the Dow to above 13,000. And that’s with the economy still extremely fragile. There are still cracks in the Eurozone. China, the wheel horse for international trade, has been faltering; although to be sure from a super, unbelievably high rate of around 10 percent growth per annum to a merely amazing rate of about 8.

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