with that last post. Sorry. I guess it was a bit technical and not very personal. I was surprised (ok, I’m young and naive) to discover that this kind of thing even existed. Maybe not that companies take advantage of people, but that they do it this blatantly.
Well, on to more exciting matters. As I mentioned in my “Red Letter Day” post, AssociatedContent accepted my financial piece. So here’s a link to Why Inflation Will Destroy Your Savings and 4 Simple Steps to Prevent It. Special thanks to Paid Twice for looking it over. Unfortunately, I couldn’t figure out a good way to implement her suggestion about changing steps to something less…structured? demanding? set in stone?
Here’s a short overview of the article (but go read it! I get paid per 1000 clicks. ;-)):
Inflation is higher than the interest on most savings accounts. So when you put money in the bank, it gradually deteriorates until you’ve got a much lower buying power than your original deposit. But fortunately, there are 4 steps you can take to stop it.
First, find an account that pays at least 4% interest: ING, HSBC, Emigrant, and such.
Second, put savings you can spare into a CD (I didn’t want to get into money markets and complicate the article, but those can be good too). See if you can get at least 5% interest on that.
Third, invest in index funds. Those will earn you way more than savings or CDs (generally). I give the names of the big Vanguard ones. Taking this step will not only help you keep abreast of inflation but hopefully actually make you money.
Fourth, start now. The value of compound interest is very important. Plus, the sooner you start, the sooner the inflation monster stops nibbling at your account.
My assumptions are than inflation is about 3% in the long run. It’s been higher recently, so maybe this trend won’t continue. And over the long run, you can make 10% or so in indexes. A few citations in the article.
All fairly basic stuff, but something that people who want to play it safe should take to heart. Your money is no safer in a crappy savings account than in the stock market. Especially not if you play the market safely* (by indexing).
*Ok, the market is never truly safe, but nothing is, really.