By Kirk Elliott, Ph.D.
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Interest rates in the United States are at the lowest points in history. This is fantastic for people who are borrowing or trying to borrow, but horrible for people who are on a fixed income, as it becomes increasingly difficult to make ends meet, especially in an era of inflation when prices for groceries, gasoline, insurance, utilities and just about everything are soaring.
On average, inflation is hovering at over 10 percent per year and has been for a long time. Therefore, if you are not earning at least 10 percent per year on your investment portfolio, you are falling behind. For example, if you have the best CD on the planet and it is earning 2 percent per year, you are actually losing 8 percent per year due to loss of purchasing power. Thus, if you keep a CD because of a guaranteed rate of return of 2 percent for ten years, you will lose 80 percent of your income due to loss of purchasing power. The only thing that is guaranteed is that you lose 8 percent per year on something you thought you were guaranteed 2 percent. When analyzing your portfolio, it is imperative that you look at it in real terms.
We must rethink how we invest in light of a low interest rate environment. Fortunately there is a solution: using growth assets to provide for income rather than using interest rate products to provide income.
Here’s how it could work: If you invest $100,000 into a CD earning 2 percent per year, the income generated on an annual basis is $2,000. This is not enough for anyone to live on. However, let’s say that you invest into a growth asset like gold, which has been growing on average 20 percent per year since 2002. However, this is an annual return, so if you invest in January it will not be worth 20 percent more the next month. It takes on average 12 months to generate that return. So, if you invest only $80,000 of your $100K, you will have the remaining $20,000 available for the first year and $16,000 every year thereafter, given the average rate of return on gold. This is an 800-percent increase over what you could have earned on a CD. This is a tremendous return, and for people who need income, who can’t make ends meet, who are concerned about their money running out before all the bills are paid, this is a phenomenal option. It’s a way to think outside of the box and generate income so you can live!
Don’t be afraid. Don’t think that there are no options. Granted, this option doesn’t work if the growth asset isn’t in a growth phase. But, over the last ten years, gold has been growing on average 20 percent per year and silver at over 24 percent per year. This trend should continue on for the next few years at a minimum with the global political/geo-political/economic unraveling that is sadly just beginning, not ending. These are perilous times, but ripe with opportunity! We can thrive, not just survive.
Be sure to contact my office at (866) 211-8986 or email me at email@example.com and request a free copy of our newest DVD, “Monetary Madness,” which will help you navigate through the economic mess that’s bearing down on us. Also, if you are in the Florida area, our firm will be holding a one-day conference in Orlando from 9 a.m.-12:30 p.m. on Feb. 8. The cost is $200 to attend, but if you call me to register, I will pay the registration fee.