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.
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
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You know, Steve, the inflation rate is a funny thing. The prototypical “basket of goods” used to calculate it fails to take into account choices we can freely make – switching brands, moving to generics, substituting, not buying an optional product, and things like that. We treat it like it's immutable, even though we have a good deal of control over our personal inflation rate. I never worry about “beating inflation” with investments, because there are so many other things I can do to mitigate its effects.
Plus, if I have more money in savings/investments than I spend, my absolute gain can easily be greater than the percentage lost through inflation (you're a mathematician, Steve, you understand that). I still make out on absolute terms, which especially for the short term is arguably more important.
Are you saying it's not worth moving money to a high yield savings account from a low yield brick and mortar account? If your choices are between the two then the high yield is still better even with inflation. If the choice is a savings account versus a different investment that can exceed inflation then yeah, you can do better.
Where would be better in today's economy to put emergency savings?
Are you saying it's not worth moving money to a high yield savings account from a low yield brick and mortar account? If your choices are between the two then the high yield is still better even with inflation. If the choice is a savings account versus a different investment that can exceed inflation then yeah, you can do better.
Where would be better in today's economy to put emergency savings?
sooo… instead of losing money in the high-yield savings account, he's going to lose it in the low-yield account.
inflation is tricky though, as curmdugeon noted. my “basket of goods” changes based on what I can buy for X amount of dollars. and X changes based on how much I want to spend.
Are you saying it's not worth moving money to a high yield savings account from a low yield brick and mortar account? If your choices are between the two then the high yield is still better even with inflation. If the choice is a savings account versus a different investment that can exceed inflation then yeah, you can do better.
Where would be better in today's economy to put emergency savings?
sooo… instead of losing money in the high-yield savings account, he's going to lose it in the low-yield account.
inflation is tricky though, as curmdugeon noted. my “basket of goods” changes based on what I can buy for X amount of dollars. and X changes based on how much I want to spend.
sooo… instead of losing money in the high-yield savings account, he's going to lose it in the low-yield account.
inflation is tricky though, as curmdugeon noted. my “basket of goods” changes based on what I can buy for X amount of dollars. and X changes based on how much I want to spend.
You know, Steve, the inflation rate is a funny thing. The prototypical “basket of goods” used to calculate it fails to take into account choices we can freely make – switching brands, moving to generics, substituting, not buying an optional product, and things like that. We treat it like it's immutable, even though we have a good deal of control over our personal inflation rate. I never worry about “beating inflation” with investments, because there are so many other things I can do to mitigate its effects.
Plus, if I have more money in savings/investments than I spend, my absolute gain can easily be greater than the percentage lost through inflation (you're a mathematician, Steve, you understand that). I still make out on absolute terms, which especially for the short term is arguably more important.
Are you saying it's not worth moving money to a high yield savings account from a low yield brick and mortar account? If your choices are between the two then the high yield is still better even with inflation. If the choice is a savings account versus a different investment that can exceed inflation then yeah, you can do better.
Where would be better in today's economy to put emergency savings?
sooo… instead of losing money in the high-yield savings account, he's going to lose it in the low-yield account.
inflation is tricky though, as curmdugeon noted. my “basket of goods” changes based on what I can buy for X amount of dollars. and X changes based on how much I want to spend.