A few weeks ago I called my bank. Exasperated, I explained that the
0.3 percent annual interest being earned in my money market account
Now, I know it's really not the bank's fault. I'm well aware that
'Helicopter' Ben Bernanke and his low interest rate policy are the
Nevertheless, I instructed the bank representative to take a
significant portion of my money market account and transfer it to
In all fairness, the funds in this money market account were never
intended to be an "investment." Rather, I've always figured that
it's smart to keep some of my savings completely liquid - not in
stocks or bonds.
Keeping it on the sidelines means it's available for whatever
unexpected events might occur.
It used to be that money in the bank would pay an annual interest
rate of three to five percent. However, that's not the case today
(and hasn't been for some time now).
With interest rates at 0.3 percent, the monthly interest I received
on my money market account was a pittance. Over 12 months, I
could expect to earn enough to take my wife out for a light dinner,
but not enough to even be considered real income. It's almost a
Given the negligent yield, I began asking myself, "What's the real
impact of holding funds in a savings account today?"
The government tells us that the Consumer Price Index - which
measures the inflation in a basket of goods purchased by consumers
- is growing at an annual rate of 3.6 percent. But that's just part
of the story, since the CPI excludes gasoline which has risen over
30 percent over the last year and food items that have also
When considering these items, it's likely that real inflation is
increasing at a rate of closer to five percent a year.
The reason I'm telling you all of this it to make a very simple
In the savings account where I had money stashed away, I was
earning a 0.3 percent yield. Compared with the rising costs of life
as measured by CPI, my money was actually losing value in real
dollar terms every year.
Suppose you were reading
The Wall Street Journal
and you saw an advertisement from Citibank that said, "Deposit
thousands of dollars today. You'll earn negative 3.3 percent over
the next year, reducing your savings!" Would you consider -
even for a minute - opening an account? I suspect not.
It's for this very reason that I'm withdrawing my savings from my
Perhaps you don't have money in a savings account. But the same
argument can be made for many other types of low-yield "safe"
investments - Certificates of Deposit (CDs), municipal bonds, U.S.
Treasuries, and even some corporate bonds.
The yields on these investments are so low that they aren't even
keeping up with inflation. As a result, if you own any of these
securities, the value of your savings sinks year after year.
The bad news is that there is no end in sight. Chairman Bernanke
has made it clear that he has every intention to keep short-term
interest rates where they are today - at zero percent - through at
least 2013. Keeping these rates so low is a direct ultimatum:
buy riskier assets or lose money.
As savers, we have a choice to make. We can either see our savings
dwindle, becoming worth less and less every month, or we can seek
out attractively priced investments that are likely to deliver
returns that exceed inflation.
The good news is that there is a better way forward. There are
compelling opportunities today to invest in world-class stocks at
the lowest valuations we've seen since March 2009.
For this reason, I've pulled a good portion of my cash savings out
of the "safety" of my bank account and have added it in one lump
sum to the
If you're similarly starved for income from your "safe"
investments, then I urge you to consider taking similar action
What will become of this money?
I'm going to 'Buy America' at a point when many financial pundits
are saying our country is going down the drain. For investors with
cash on the sidelines today, there are numerous attractive
Keep an eye on your inbox. I'll be sending you updates on what I'm
doing with this money in the
over the coming weeks.