Tuesday, December 09, 2014

Cash Investment for Savings Out Moded : New Thinking for Investors

Interesting take for investors that rely on cash for secure returns. As this article points out, the feds are encouraging spending with their zero interest rates, and not savings with cash balances, which in turn makes the economy risky business for cash holders as an alternative investment.

The new thinking is combinations to off set risk adverse individuals, especially retirees and fix income people.

The Death of Cash as a Vehicle for Saving
Source: David Ranson, "The Death of Cash as a Vehicle for Saving," National Center for Policy Analysis, December 9, 2014.

December 9, 2014

Cash is no longer a viable vehicle for saving, contends Senior Fellow David Ranson in a report from the National Center for Policy Analysis. The Federal Reserve's zero interest rate policy has encouraged spending rather than saving, and low-risk options like U.S. Treasury bills provide little in the way of returns, leaving investors to take on risky and volatile assets in order to generate wealth.
This situation is a problem not just for individual investors, but for the American economy, which relies on capital and savings to generate growth.

But though cash is no longer a viable savings vehicle, Ranson says there is another way to generate decent and stable returns: by using a specific mix of inverse, volatile assets, investors can produce returns similar to those previously produced by cash.

For example, stocks and gold have a highly inverse relationship: when the dollar rises, gold falls, and vice versa. By investing in a mix of equities and gold, investors can guarantee a safe return. Ranson notes that from 2000 to 2010, S&P 500 stocks returned just 1.4 percent annually, while gold rose at 17.5 percent, but in the previous decade, gold fell by 3.5 percent annually while the S&P 500 returned generated an 18 percent return annually.

Similarly, commodities are inversely related to high-quality bonds, so investing in the two simultaneously can generate returns that are much less volatile than investing in commodities or bonds alone.

By investing in a mix of stocks, bonds, gold and commodities, Ranson says investors can reap high returns with long-term stability.
 

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