Protecting Your
Nest Egg

 

If you have been fortunate enough to accumulate a sizeable asset base then you may want to move to protect your nest egg from decreasing values in traditional investments that are rapidly eroding in value due to the devaluation of the dollar and turmoil in the debt markets. These factors affect all investments whether they are stock, bonds, or even cash.

Saving and keeping your nest egg intact will also be a challenge. The amateurs will be the first to go. As real inflation continues to erode the value of portfolios more rapidly than market losses it may be difficult to isolate the true value of your savings. If you think that inflation and the decreasing value of the dollar hasn't affected your investments then a closer look may reveal some shocking facts.

The Inflation Game

The chart below illustrates the annual inflation rates from the year 2000 through 2010 as calculated by the Consumer Price Index (CPI). In addition to the CPI the price changes in several commodities are listed for the same years. According to the CPI, prices increased by 30.70% during this time period. Over the same time period gold increased by 438%. Corn, wheat, and gasoline prices have all increased many times that of the CPI for the same time period.

Originally the Consumer Price Index was intended to reflect a sampling of a mix of goods and services used by the average consumer. Although the index is still widely quoted it hardly is a fair representation of average consumption. The CPI now excludes food and energy. What consumer does not use these? Many argue that a more accurate reflection of inflation is the dollar's relationship to the price of gold.

Although inflation does not seem to exist in the world of "make believe" indexes such as the CPI for those of us that actually visit the grocery store on a regular basis the cost of living increase can be very sobering. If you are fortunate enough to have investments you may want to contrast the ten year returns on the commodities above with your current investment returns, Don't be too surprised if your investments have not kept up.

On December 29th, 2000 the Dow Jones Industrials were valued at 10,787.99. On December 31st, 2010 the index closed at 11,577.51*. Had you invested in those stocks during that time period you total return would have been a mere 7.31%. This would have given you a return of 20% less than the CPI. Still think stocks are the best investment?

Given the current economic policy of handing out billions of dollars to to global corporate giants and the unbridled printing of dollars anyone with even the most basic knowledge of economics should recognize that we are in for the greatest inflationary ride in history.

If you truly want to protect your nest egg consider investing in commodities. Gold, silver, corn, flour, rice, land, etc. Buy something of value that you can build with, eat, wear, grow, or live on and take personal possession of it. Ten years from now you will be glad you did. This is not "doom and gloom" investing, just plain common sense.

*http://www.nyse.tv/dow-jones-industrial-average-history-djia.htm
CPI - U.S. Department Of Labor All Urban Consumers - (CPI-U)
Gold - Kitco.com http://www.kitco.com/charts/historicalgold.html
Corn - Yahoo Finance - http://finance.yahoo.com/q/hp?s=CPO
Wheat - Kansas City Board of Trade - http://www.kcbt.com/historical_data.asp
Gasoline - EIA.Dept of Energy - http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html