Joined: Oct 15, 2005 Posts: 1561 Location: Portland, Oregon
Posted: Mon May 05, 2008 7:25 pm Post subject: How Long until Inflation destroys our Investments
We have all seen the reports of double digit inflation in the price of some types of food, rsocial unrest and riots in some parts of the country.
My question is, how soon before any investment we make (gold, silver, stocks, etc) earns much less of a return than inflation? At some point, instead of putting money away in metals or energy stocks, should we be running out to buy that bag of rice or flour before it jumps in price again?
Joined: Oct 11, 2005 Posts: 411 Location: Arizona, USA
Posted: Mon May 05, 2008 7:35 pm Post subject: Re: How Long until Inflation destroys our Investments
My wife and I decided to forgoe her employer's 401K and instead use the money to buy things we need around the house, like topsoil. I have serious doubts that people will get anything out of their retirement investments 30 years from now. I think there are better ways that money can be spent that will go much farther in providing basic needs when they are required much sooner than retirement time.
Posted: Mon May 05, 2008 7:37 pm Post subject: Re: How Long until Inflation destroys our Investments
This is a very tough question to answer. Since the "value" of anything requires that there will be some sort of society there to utilize it. If the overarching society shrinks in scope and complexity, then the relative value of everything would decrease. Think about how much land was worth in American Colonial times as compared to now for example. _________________ http://backtowilderness.blogspot.com http://grown-up-permaculture.com
Joined: Sep 03, 2007 Posts: 621 Location: Sunny Virginia, USA
Posted: Mon May 05, 2008 7:38 pm Post subject: Re: How Long until Inflation destroys our Investments
thuja wrote:
We have all seen the reports of double digit inflation in the price of some types of food, rsocial unrest and riots in some parts of the country.
My question is, how soon before any investment we make (gold, silver, stocks, etc) earns much less of a return than inflation? At some point, instead of putting money away in metals or energy stocks, should we be running out to buy that bag of rice or flour before it jumps in price again?
If you are contemplating all this and don't have enough food to last a year, you are way behind the game. Should real inflation (food+energy+core inflation) go above 20%, then you've got some tough and quick choices to make:
Do you leave it in the 401k or pull it and put it into metals and food? If you do, I suspect you'll want to pay the taxes up front.
Do you leave it there and try to ride it out? The gamble is if hyperinflation hits, then the dollar is proably destroyed and you lose your retirement.
The right answer at the right time will protect your assets, the wrong one can destroy your financial future. Of course, you have to make it through to have a future. _________________ When somebody makes a statement you don't understand, don't tell him he's crazy. Ask him what he means. -- Otto Harkaman, Space Viking
Joined: Apr 27, 2007 Posts: 4353 Location: The Great Sonoran Desert
Posted: Mon May 05, 2008 7:39 pm Post subject: Re: How Long until Inflation destroys our Investments
thuja wrote:
should we be running out to buy that bag of rice or flour before it jumps in price again?
That has been my message since day one here.
It is getting to be very close to that time when it is too late.
"too late" is defined as a resource not being available at any price.
Then ask yourself...how will the children be fed? _________________ "There must be a bogeyman; there always is, and it cannot be something as esoteric as "resource depletion." You can't go to war with that." Emersonbiggins
"... hope is a rotten-thighed whore" Niko Kazantzakis
Joined: Oct 15, 2005 Posts: 1561 Location: Portland, Oregon
Posted: Mon May 05, 2008 8:12 pm Post subject: Re: How Long until Inflation destroys our Investments
Well actually its fairly tricky question. I have always erred on the side of having "things" more than investing a lot of money in assets. The "things" that I purchased instead of investing have included-
a wood stove, a bicycle, materials for a wood shed and a chicken coop, materials and tools for food gardening, a rifle and ammo for hunting, a metal roof, etc etc.
I have also invested in silver but I now wonder if any of my extra money should go towards buying food and storing it as inflation in food prices is beating most any investment out there...
Posted: Mon May 05, 2008 8:29 pm Post subject: Re: How Long until Inflation destroys our Investments
thuja wrote:
Well actually its fairly tricky question. I have always erred on the side of having "things" more than investing a lot of money in assets. The "things" that I purchased instead of investing have included-
a wood stove, a bicycle, materials for a wood shed and a chicken coop, materials and tools for food gardening, a rifle and ammo for hunting, a metal roof, etc etc.
I have also invested in silver but I now wonder if any of my extra money should go towards buying food and storing it as inflation in food prices is beating most any investment out there...
Joined: Oct 23, 2004 Posts: 5925 Location: New Jersey
Posted: Mon May 05, 2008 8:38 pm Post subject: Re: How Long until Inflation destroys our Investments
If you ignore how to store them for the sake of discussion, grains and oil will be better investments than your 401k plan and perhaps gold/silver.
There may be some investments that can substitute for oil/PMs if you are comfiortable with investment trusts (USO, GLS, SLV).
It's becoming clear that even though many companies can pass along costs with higher prices, their net profits are being undermined by even faster rising energy prices.
However closing out a US retirement plan is an extreme move that should only be undertaken only after careful consideration of tax implications and a long term savings plan.
Last edited by DantesPeak on Mon May 05, 2008 8:59 pm; edited 1 time in total
Joined: Dec 07, 2005 Posts: 1881 Location: Australia
Posted: Tue May 06, 2008 12:22 am Post subject: Re: How Long until Inflation destroys our Investments
Quote:
We have all seen the reports of double digit inflation in the price of some types of food, rsocial unrest and riots in some parts of the country.
My question is, how soon before any investment we make (gold, silver, stocks, etc) earns much less of a return than inflation? At some point, instead of putting money away in metals or energy stocks, should we be running out to buy that bag of rice or flour before it jumps in price again?
This is such a weird post.
You are somehow suggesting that everything but food increases in price at a rate lower than the average inflation.
This means money supply (which is the cause of inflation) needs to continue increasing, with almost all this money just going towards food.
I don't think this is a likely development. For instance for the simple reason that food is harder to store than for instance metal and therefore harder to manage as a long term.
Secondly, when prices jump up enough, trades get worried and look for something that comes at a better price. So money always moves around a bit.
Sure you may see food prices accelerating at a faster pace than most other asset classes. (which is not strange as in periods different things take the lead).
But this does not equate to all other things appreciating at a sub-inflation rate.
What you will see with food though, and it has already started, is that there will be government intervention (surprise) to cap prices and curb exports. This tends to lead to increased black market and products disappearing off the shelves. (a.la. Zimbawe style)
(This results in food possibly being a poor investment class as you are not allowed to get max price unless you can get it out on the black market). This is standard government behaviour, so not unlikely. _________________ It's not a bailout, it's a buy-in" - Nancy Pelosi
Last edited by Micki on Tue May 06, 2008 4:15 am; edited 1 time in total
Posted: Tue May 06, 2008 3:47 am Post subject: Re: How Long until Inflation destroys our Investments
Inflation is a function of human perception. If people think $110 is worth what $100 was 8 years ago, there's 10% inflation. Today, people think $120 is worth what $30 was 8 years ago. Human perception determines how much printed money actually comes into circulation & how much stays locked up. _________________ People first, then things, then dollars.
There will be enslavement, cannibalism, & zombie invasions.
Joined: Dec 07, 2005 Posts: 1881 Location: Australia
Posted: Tue May 06, 2008 4:13 am Post subject: Re: How Long until Inflation destroys our Investments
Quote:
Inflation is a function of human perception. If people think $110 is worth what $100 was 8 years ago, there's 10% inflation. Today, people think $120 is worth what $30 was 8 years ago. Human perception determines how much printed money actually comes into circulation & how much stays locked up.
This is just getting weirder.
So now we just perceive inflation and cost increases are imagined.
I blame also this on the central bankers and other PTB as most people don't seem to have even a fundamental idea of what inflation is.
So here we go again.
Inflation is an increase in money supply (real, not perceived) greater than productivity gains.
The result is more money chasing same (or relatively lesser) amount of goods. As a result prices go up (not just that we think they go up, they really do). So price increases are a symptom of inflation, money supply is cause.
Certain prices can go up without there being increased money supply. But this leads to shortage of money for other things, thus the price increase of the first thing is offset by the other things. Therefore overall without increased money supply, no inflation .
When interest rates are kept low, more money is borrowed, thus increased inflation. _________________ It's not a bailout, it's a buy-in" - Nancy Pelosi
Posted: Tue May 06, 2008 6:43 am Post subject: Re: How Long until Inflation destroys our Investments
RM wrote:
That has been my message since day one here.
It is getting to be very close to that time when it is too late.
"too late" is defined as a resource not being available at any price.
Then ask yourself...how will the children be fed?
Agreed.
When I see some people on this site arguing against stocking food, I always think - man, what are these people doing with their money that they think is more important than food.
I'd also caution against assuming that food will be available to you just because your country produces more than it consumes.
It's great that we grow more food than we eat in the U.S..
But if that's where your thinking stops, then you haven't thought it through, IMO.
What about when we hit that massive diesel shortage?
What then?
When the wheat can't be moved to where it's needed - when they have to load it on trains - when they have nat. guard armed with microwave guns protecting it - when you have to wait in line to get your .75 cups per member of household - then you will realize that being able to grow more food than you eat is not the same as eating the food.
On a broader scale, look at it this way - the world currently can grow more food than it needs.
But that doesn't do a thing for the starving kid in Somalia.
Joined: May 13, 2005 Posts: 2909 Location: The Urban Village
Posted: Tue May 06, 2008 7:04 am Post subject: Re: How Long until Inflation destroys our Investments
Diversify. Manage risk.
Buying tangibles - food, land, clothing, home stuff (insulating etc) are good things.
Intangibles - skills, family, friends, community are good.
Still, you may have excess paper wealth you want to park for a while. There are many investments out there that make way more than inflation, you just have to pick the right ones.
Posted: Tue May 06, 2008 7:18 am Post subject: Re: How Long until Inflation destroys our Investments
From the macro view, Micki has it right, IMHO. From my viewpoint as a comparatively poor old guy, my best choices for "investment" lie in things that are productive for me. I am investing in the ability to GROW food, for the reasons others explained here. Since I don't have a lot of excess cash to invest, what happens with Wall Street doesn't affect my choices of investment very much.
Pops touched on the point of some prices being set by other people. That factor alone is enough for me to choose things that only serve me, and are unaffected by the world of finance. My root cellar will store food that I grow, and I will eat it, cooked on my wood stove, all of which will be unaffected by Wall Street, The Fed, the govt, and world trade. That's the only thing that makes sense to me, to get into a position where I can duck the bullets we see coming. _________________ Local fix-it guy..
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