Avoid These Investments that Don’t Keep Pace with Inflation

Investing for retirement is nothing more than a race, and your pursuer is inflation. If you stash your savings in anything that inflation can catch, you’ll only be wasting your money.

Inflation is the word people working at the Fed (with intelligent sounding titles, like “chairman”) use in place of the phrase “rising prices.” Inflation is the realization that as time goes on, things get more expensive. Hop in your time machine and go back 10 years. You’d find that gas was nearly a dollar per gallon, movie tickets were almost half what they currently are and property taxes were still outrageously high, but slightly less so than today.

(Of course, if you’ve recently thought about refinancing your home, you know that deflation is just as much a concern as inflation. But will save that for another time… :))

Why Do Savers Need to Worry About the Pace of Inflation?

Most people think savings is the opposite of spending, but this analogy isn’t really accurate. Savings is just delayed spending.

Savings Account

Photo by jonathansin

Think about savings and inflation this way. You golf every week for $22. Then one day decide that you’d rather quit golfing, save the weekly $22 for 30 years so that you can golf for 30 years after you retire. You are diligent and stash away the weekly $22 for the next 30 years, right up until retirement. The first day of being work-free, you grab your old golf clubs and head to the links. Surprise, a round now costs $65 to play. Grabbing a calculator, you realize that instead of trading 1,560 rounds of golf in the past for 1,560 rounds of golf in the future, you traded 1,560 rounds in the past for 528 future rounds.

Would anyone disagree that 1,560 rounds is better than playing 528 rounds? This is exactly how savers get burned when they invest in instruments that don’t keep pace with inflation. Unfortunately, there are a number of ways people invest that lose to inflation.
Continue reading

Why Your Children Should Open a Roth IRA at Age 18

I remember when I started saving for retirement. My employer announced that they were going to begin a 401k plan with a match. I didn’t know much about investing at the time, aside from the facts that I:

  1. Wanted to retire as early as possible,
  2. Knew the match was like free money (I like free money)
  3. Heard 401k plans are a good way to go.

Starting at 21, I was probably ahead of the curve. Many of my friends began their savings the next year, after graduating from college. I’m certain that there are many others that put off saving well into their careers. The point I’m trying to make is that most people are faced with the option of saving for retirement by the time they have a job. That’s not to say that they make the smart choice of actually opening an account.

Bull Market Wall Street

Photo by Carlossg

Continue reading

Learn How to Monetize Anything by Understanding the Value Proposition

Entrepreneurs bandy a plethora of official-sounding buzz-terms like “blue ocean strategy” and “ROIC.” If you want to monetize any goods or services, value proposition is the buzz phrase you want to get to know.

DMV lineI’m a monetization nerd. When I drive home from work, I wonder if I can I find a way to make money during my daily commute? When I’m standing in line at the DMV, can I make money during my waiting time? At the grocery store, how to make money shopping each week gets as much focus as my grocery list. When I’m doing my bills, I think about how to make money on credit card debt by cashing in on reward miles.

When I’m exercising my monetization muscles, I’m not thinking up hare-brained business schemes. I try to build solid value propositions.

What is a Value Proposition

A value proposition is no different than a marriage proposal made to a complete stranger.  The only real difference is that the proposal is pitched to a customer instead of a future spouse.

Continue reading

Everyday Household Items that are Beating the Stock Market

I’m suffering from the Lost Decade Mood Disorder (LDMD) this week. LDMD occurs when index investors come to the realization that they gained almost a mere 3%, betting on the S&P 500 over the last ten years. That’s before inflation, mind you. The more commonly known symptom is retiring much, much later in life, but I’ve developed something new: finding weird investments that could have earned me a greater return than the market.

Weird Investments

Photo by MallyDally

Movie Ticket Vouchers

Last week, my wife and I located some free movie ticket vouchers that we’d received from an unpleasant movie theater experience 5 years ago. Let’s just say our box of popcorn and some used gum was involved. Standing in line I noticed the price of a ticket these days (we haven’t been to the theater in 3 years) and was astounded at the cost. It made me wonder what my return would have been if I bought movie ticket vouchers 10 years ago and sold them today. According to the National Association of Theatre Owners, the average price of tickets rose $2.50 from 2000 to 2010; a return of 46%.

Forever Stamps

Debuting in 2007, the forever stamp was a new creation from the USPS. Given the propensity of stamps to continually increase in price from year to year, the snail mail barons decided to give letter senders an option to buy stamps that would appreciate with regular registered mail prices. The first forever stamp sold for $.41. Flash forward to today and the USPS is bumping up the price to $.45. A change of four cents sounds small, but in return it amounts to 9.75%.

Nickels

Thanks to the appreciation of scrap metal, scrapping your five-cent piece was more profitable than spending it ever since 2006. Back in March of 2011, scrap nickel bought at about $.07 a nickel. That’s a return of 40%. Of course, there is that whole problem of it being illegal to deface currency and all. Realizing returns would require an act of congress and who thinks legislation will be passed anytime soon?

Jewelry

Your wedding ring is doing much better than your retirement funds. Jewelry is an obvious pick as a household item that appreciates. Right now, everything related to jewelry is providing good returns these days.

Gold is trading up over $1,800 an ounce. Diamonds increased in price by 7% just last year alone. The CPI for all jewelry is inflating into the double digits.

Of course, I don’t recommend investing in any of these items. However, it does make me wonder if I’d only put my money into movie ticket vouchers instead of a 401k, would I be looking at an early retirement?