Safeguarding cash from inflation
My wife & I have a significant amount of cash on hand, due in part to selling our previous house. Most of it is in a high yield savings account, which is paying just around 1% or so, while the rest is in other interest bearing accounts whose returns are even less. We don’t need access to the funds for the foreseeable future (at least 24 months or so). What advice would you give to those in a similar situation who are looking to safeguard themselves against inflation? BTW – we purchased another house already, so this money won’t be needed for that.
Thanks for your time.
Terry Says
Well, that’s the big problem with “chicken money” today. The gap between what you’re earning on safe investments and how inflation is ripping you off is huge! BUT — what are your alternatives?
Do you want to risk losing some of that money? If so, then definitely put some in a balanced stock market fund, and if you have a 20year horizon you will have a very good chance of making money. In fact, there has never been a 20-year period, going back to 1926, where you would have lost money in a diversified stock market fund with dividends reinvested — even adjusted for inflation.
But if you are going to have a heart attack if a 10year bear market comes along (and there was one –a flat market — between 1972 and 1982 — then don’t take that risk! Wait it out in your MM fund. If inflation really digs in, rates will rise.
Sitting it out is just a less painful way of losing money short term than going through a bear market and selling at just the wrong time!
