the perils of saving

As I tend to do, I’m going to throw out a few statistics from memory and not back them up with links. As part of my 6-posts-in-one-day project, this is post #3.  Today one of my coworkers asked me about my high-yield savings account, since he was keeping his cash in one of those savings accounts that pay .001% interest.  I said that high-yield savings accounts were fine, but inflation was eating so horribly into the value of a dollar that I hardly saw it as a reasonable place to stow a lot of money these days.

Mount Timpanogos (B&W) - 03/06/07

And his reaction explained to me exactly the difference in mindsets between different types of people. Lacking “get rich quick” glittery headlines, he got discouraged.  Since a 3% interest rate doesn’t really offset the American 5% (and growing) inflation rate, he didn’t see the point.  The incremental decrease in loss of value didn’t excite him enough to pursue it – if he was losing 2% or 4.999%, he figures he’s still losing, so why bother?

Getting defensive, even on your loss positions, is the mark of a savvy investor. “Savers” will hold onto something that loses them money forever, like a high-yield savings account, because it FEELS like saving.  It’s not.  It’s money going out the door, moving to Beijing and never coming back.  Make sure that you minimize your losses, even while maximizing your gains.
photo credit: a4gpa