Safest Investment Options?

Discussion in 'Economics' started by Highterm, Oct 11, 2005.

  1. Highterm


    I realise this may sound a little paranoid ……..but I’m a born worrier!

    Under these two worst-case scenarios, what do you consider to be the safest options for preserving the value of ones assets/investments? I’m based in the EU.

    1. Inflation takes off.
    2. Severe recession, deflation, bank failures.

    My guess is, if inflation takes off, then assets such as income producing real estate and commodities like gold would retain the purchasing power.

    In a deflationary environment cash would increase it’s purchasing power but would be at risk from bank failures. What is a safe, cash like alternative, government bonds?

    And if the outcome is unsure, what other options are available now to hedge the bet?

  3. Safest instrument on earth for return of principle - short term T-bills. Held at the safest place on earth - the U.S. Treasury.

    Go to the website Treasury Direct. Account set up is simple. They take the money out of the account that you direct for treasury auctions, and automatically wire your interest to you. It's easy and seamless.
  4. kowboy


    The latest published auction results for a 6 month T Bill was paying an annual return of 3.76%. The interest income is exempt from local and state taxes, but subject to US income tax. If you are subject to US income tax at a rate of 28%, the after taxes would result in an approximate net return of 2.71%

    The latest annual inflation rate in the US was calculated in August at 3.6%

    This means you only loose net purchasing power of .89% annually to hold your funds in T Bills.

    Unfortunately, some believe the actual inflation rate in the US is more like 6 to 8% because the government is believed to fudge the CPI numbers. Also the US dollar has depreciated dramatically in value compared to other currencies over the last 5 years. Over the last five years, it would have been better to hold any stable foreign currency over that of the US dollar,because with the the US dollar you would have lost an alarming amount of purchasing power on your assets. The US has established a policy of alowing inflation over that of fiscal restraint and would rather have the stimulus of job creation rather than that of slowing the economy just to protect the dollar's value.

    The only game in the US recently was in real estate, but it is anticipated that is going to end or reverse in the future with the interest rate increases ahead.

    So the question remains, where can you protect your assets and the purchasing power of your assets and earn a better return at the same time?
  5. Well, if there were, god forbid, a severe recession due to some 1918 flu-like pandemic, real estate would probably be toast. So, it may not be wise to put all your eggs in that basket.
  6. slacker


  7. kowboy


    To follow through:

    Five years ago, if you had merely taken your US dollars and converted them, then converted them back into US dollars today you would have more dollars today by far, despite the recent upturn in the US dollar:

    Holding Euros would have yielded you 40.1% more dollars,

    Holding the Swiss franc would have yielded you 36.5% more dollars,

    Holding Canadian dollars would have yielded 28.1% more,

    The British pound sterling would have yielded 21.5% more dollars.

    The US appears to be on irreversable path of exponentially destroying the US dolar. And the purchasing power of the dollar is only a fraction of what it was 25 years ago. So the dollar may be safe as far as relying on the US to redeem your t-bills, but at the cost of losing purchasing power on your $ held assets.