A dollar or a loaf of bread?
The Advocate, Wednesday September 7, 1994
When financial professionals say, you have to protect the purchasing power of your money, what does that really mean to you?
Remember when telephone calls were a dime? Now they are twenty-five cents. When will they cost a lonnie? Get the idea? It costs 2 1/2 times as much and we can expect it to go to 10 times as much at some time in the future. It takes two to ten times more dollars to enjoy the same service.
Let's look at more important things such as food. Today, a loaf of bread costs approximately one dollar. At six percent inflation, that same loaf of bread will cost two dollars in 12 years - twice as much! Will your investments be worth twice as much? And that is just to maintain an equal standard of living.
Remember, it's what you have, after taxes, that you can spend at the store. You have to look at net return. That is what has to double in 12 years. If you have protected your capital in guarantees with little growth, your dollar may be worth more.
At six percent interest after paying tax in an average 42 per cent marginal tax bracket, you are left with a net return of 3.12 per cent. Your spendable dollar is worth $1.45 in 12 years. When you go to the store to buy that same loaf of bread, you can only but 3/4 of a loaf. Hope you're on a diet. What you need is more dollars. How do you buy 3/4 of a loaf anyway?
Now you understand a little, what retired people go through when they get stuck on a fixed income with very little growth. The longer they live, the lower their
standard of living gets. It's a vicious downward spiral.
No matter what your age, your investments need to grow at least by the standard of living after taxes. What we all need is a safe proven way that will at least keep up with the cost of living and hopefully stay ahead of it. I hope we all want to increase our standard of living.
As I wrote in one of my previous articles, ownership in excellent, profitable companies is the way to do this.
Two ways are: 1. You pay less taxes, and 2. You will have sufficient growth to beat inflation.
As I wrote December 1993, "Paradigm Shifts to the New Economy" you cannot afford to get less than 10 per cent on your investments. I'm sure you realize
by now that the right mutual funds are the long-term investments that can accomplish this for you.
I have an excellent article, "The Importance of Growth," by Dr. Riley Moynes author of "The Money Coach." Contact me for a copy.
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