I took my six and eight-year old sons to the bank this weekend to open their first savings account.
It felt like the right thing to do - they are at an age where they can understand the power and importance of money, albeit if mostly from the perspective of the things that can be bought with it.
But the hope of course is that the habits of savings, of delaying gratification are ones that will stay with them for a lifetime.
So off we walked to our local Bank of America branch - both boys clutching around $100, and proudly announcing our intentions to the teller.
We were then escorted to a BofA “personal” banker, who graciously walked us through the account opening process.
All was going quite swimmingly, and then I did something that I knew I shouldn't but couldn't resist.
I asked what the interest rate was.
And our banker glibly informed me that it was one tenth of one percent. 0.1 %.
And then instead of feeling all fatherly and a great role model…I felt like a real chump.
Every year my boys will earn one dime in interest.
Let's say they really button down and build up their accounts to $1,000.
That will get them one dollar per year.
Heck, how about those folks that work hard and save for a lifetime and accumulate $1 Million in savings?
Well, in the bank they are now earning a beyond miserly $1,000 per year.
Sure there are savings accounts that pay a little more, but has there ever been a time where the risk – reward gap between saving and investing was greater than it is right now?
Let’s define savings as what I did with my boys this Saturday: Putting and leaving money in the bank.
And let's then define investing as pretty much everything else: Public and Private Stocks, Bonds, Real Estate, Commodities, Collectibles, and more.
When it comes to return (0.1%), the comparison is an utter and complete joke.
But, it is when it comes to Risk, well…
…Investing, of course, involves risk. Always has, always will.
And while it is understood that while cash savings offers far lower returns, the tradeoff always was the assurance that your money was safe in the bank.
But in today’s economy, very unfortunately it simply is not.
Why? Because of massive inflation risk.
As in 10%, 15%, 20% annually or more.
And potentially coming not in the distant future, but very possibly in the next few years.
Since 2008, our Gross National Product has increased approximately 10%.
In that same time, the Federal Reserve has expanded the Money Supply more than 400% - from $800 billion in 2008 to over $3.9 trillion today.
As in four times as many dollars floating around here and abroad than there were six years ago.
Even generously taking into account the fact that the Greenback remains the reserve currency of choice the world over, this can only account for a fraction of the money supply increase.
Inflation – and lots of it – will eventually cover the rest.
And when it does, the savers amongst us are in for a world of hurt.
This is sad, because in so many ways the savers are the responsible ones - delaying gratification.
Planning for the Future. And for a rainy day.
But when the inflation deluge comes, our poor and pathetic savers probably won't even be able to afford an umbrella.
When I think of it like this, next week I'm marching my boys back to the bank and we're closing those accounts.
On the walk back, I'll teach them how to invest.
To Your Success,