RiskMetrics - Risk Assessment Tool for Stocks

Avoiding Risk is a Sure Path to Failure

Is cash really riskless?

For example, cash is often classified as a riskless investment. After all, $1 is always going to be $1, no matter what happens to the markets. However, things look different from a longer term perspective because inflation continually erodes the purchasing power of cash.

Inflation erodes the value of cash

In the illustration below, consider the effects of inflation on the value of a $1 bill stuffed in a mattress since 1950. While a dollar from 1950 is still worth a dollar today, it now buys 88% less than it did fifty years ago. For example, in 1950 a dollar bought a lunch and a matinee movie. Fifty years later, the same dollar doesn't buy you more than medium french fries at a fast food restaraunt.

The old adage "nothing ventured, nothing gained" should actually be "nothing ventured, sure to lose."

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