Is Investing Now Necessary?
From the New York Times:
"The average rate paid by banks on basic, federally insured savings accounts — known as the annual percentage yield — was a mere 0.05 percent as of Monday, according to the Federal Deposit Insurance Corporation.
That means if you had $5,000 in a savings account, you would earn $2.50 a year on your money.
Nor should savers count on an improvement anytime soon. The Federal Reserve has signaled that it expects to keep interest rates near zero for the next couple of years, as it manages the economy through the pandemic and its aftermath."
Accumulating wealth via saving rather than investing was always difficult. Today, it has gone from unlikely to virtually impossible. Yes, savings accounts will continue to be the low risk, low return alternative to investing, meant to satisfy ongoing cash flow needs and shorter term goals. All despite losing money after inflation. But any single-mindedness on asset preservation as a portfolio strategy is all but ensuring that you will lose money. Slowly, yes. But absolutely lose a lot over time.
The solution is to effectively balance the needs of today with the responsibilities of tomorrow. Wasting time calling local credit unions competing for another 50 bps in a savings account won't move the needle. Sound investing above and beyond asset preservation needs is the only available option I know to ensure that the set of activities now being supported will continue to be supported in the future.
The cost of not investing, I believe is far greater the inevitable drawdowns that come when investing. Negativity is not an investment strategy. If you don't want to lose your money to inflation, I know of no other way around not investing. Given the current interest rate environment, this has never been the case more so than it is today.
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Sources:
$2.50 a Year in Interest? That's What $5,000 in Savings Gets (New York Times)
Negativity is Not an Investment Strategy (A Wealth of Common Sense)
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