Comments on: I Do Believe in Fairies! I Do!

By: dmerkow

dmerkow — Sat, 28 Feb 2009 06:43:34 +0000

The problem with investing comes back to the issue of inflation. In an inflation-free environment folks would be happy with probably 1-3% return with relative safety, but if you expect inflation (and so many of the folks in their peak investing years do have memories of inflation though not deflation) know that 1-3 will get destroyed by inflation very quickly, whereas searching for 5-9% is more inflation resistant. These are rough numbers, but that is quandry – safe money often gets destroyed by inflation while risky money is well risky, it can go up enough to escape inflation and it can disappear.

By: David08

David08 — Sat, 28 Feb 2009 01:11:38 +0000

Britta: The current yield of I Savings Bonds is 5.64%. You can purchase up to $10,000 per year, and the income is exempt from state and local taxes. Prof. Burke: Krsek argued, and rightly, that money one needs to spend within a decade shouldn't be in stocks. He didn't suggest, though, that the only way to win at stocks is to time the market. In fact, he pointed out that prices are quite attractive right now for those with a stomach for risk and a 15+ year horizon. He had examples of his own, but here's another: Coca-Cola is so discounted that the yield alone is 4%. Maybe the Epic Mortgage Fail will sink global demand for addictive sugar syrup, but I'm not betting on it: that dividend has increased every year since 1965, bull or bear. The stock market isn't a Ponzi scheme because it deals in actual ownership of actual stuff. If you hold shares of KO, you own factories, a distribution chain, technology and IP, customer/employee/supplier relationships, brand names, growth strategies, and the cash flow that the whole business creates. The quality of the business matters. If you have time enough to filter it, the high-frequency noise in Mr. Market's price for that business doesn't.

By: moldbug

moldbug — Sat, 28 Feb 2009 00:32:49 +0000

Another insightful perspective from Professor Burke. For the full, sweeping historical scale of the atrocity, however, I would consult another professor - George Bancroft. Ambassador Bancroft, in case you don't recognize his name, was more or less the founder of American academic history as we know and love it. Britta, in case you're still looking for that safe haven, I'm pretty sure what George Bancroft would recommend.

By: Timothy Burke

Timothy Burke — Sat, 28 Feb 2009 00:16:43 +0000

Yeah, so I dunno. Seems to me that even money earning almost nothing is better than money bleeding out for another year?

By: Britta

Britta — Fri, 27 Feb 2009 21:47:41 +0000

If you know of a safe haven earning 4-5% interest per year, please let me know immediately. Looking at CDs and savings accounts, you’re lucky to be topping 2% in this climate it seems, even if you have large amounts of cash and qualify for the super duper platinum account.
It seems that when the stock market crashes so do interest rates, so one’s ability to make money off of money pretty much disappears. It comes down to, sit on a pile of secure cash that is not doing anything (though I guess deflation helps counteract low interest), or lose money in the hopes that some time in the future you can get it back and then some.