Purchasing Power of your Cash

Well, it is no secret today that we have now seen a record high inflation rate of 8.2% https://www.inflationtool.com/rates/usa. So, inflation is nothing new, consumer pricing on goods and services go up but this time around it hurts a little more. Since the Covid-19 pandemic started we have seen a major supply chain blockages in all industries and a real shortage of consumer goods. Now, top this off with a multi-year high price of crude oil which translates to higher gas prices at the pump and diesel, so transportation and trucking costs have skyrocketed!

What about other factors? To date, the stock market major index have fallen below the “correction” level into bear market territory (i.e. dropping as much as 14-27%) year to date. No one can accurately predict how far the stock market will drop. On average, since 1948 every time we are in a period of rapid inflation the stock market has lost value. In 2008-2009, the recession coincided with a 45% loss in the S & P 500 stock index. So, no one knows how far the stock market will drop. Financial analysts or stock brokers will tell you to keep your money in the market as gains and losses will even themselves out. So, what is the big deal, right? The stock market always bounces back and makes more money. Err, well it should be what if we need the cash now? Loss. What if you don’t have time on your side and you are retired looking to protect your nest egg? Loss is now compounded.

Simple equation suggests that if you ONLY move stocks into cash now a 10-20% loss will be compounded by the loss of purchasing power due that nasty inflation we talk about above. EXAMPLE – if you hold cash for 1-2 years that means a COMBINED 26-32% LOSS between inflation and stock market losses.

These complicating factors are reasons why good wealth managers will help people diversify their money into different types of assets that protect from downsides in the USD and financial markets. The “seesaw” analogy is a good rule of thumb for investing. When one goes down, the other goes up! So, have assets that are tangible, real and do not fall like “paper” stocks and bonds. Real, tangible assets are real estate, fine art and physical gold and silver coins. The latter, gold and silver coins that are collectible in good quality (not rare coins) and a great source of real asset diversification and will also protect your value of cash. Do not fall into the trap of looking at the GOLD OR SILVER contract price that is available on the internet. That only tells of what a paper contract for 1 oz of either precious metals are valued at and does not accurately represent what the value of each gold or silver coin. EXAMPLE – even if the silver price for 1 oz of silver contract today is $22, some of the old, collectible silver dollars can be valued between $35 to $50 depending on their quality. Same with Gold coins. In summary, you should always own the physical silver in a coin form, so you have an asset that is both, privately owned in your possession and has coin value over and above the melt value of the silver.

Overall, don’t get caught in the trap of staying the course with your stocks, sell lower to trade with another asset, like silver which is priced lower now, so you don’t have all your retirement eggs in one basket. And, if you only move to cash for safety, know, your purchasing power of cash due to inflation will lose considerable value! Buy some physical gold or silver collectible coins that can diversify your cash today. #gold #silver #collectibles #diversifyassets

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