Wes Moss: Is your money earning zero percent?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Interest rates are currently so low that money sitting in checking or savings accounts is earning a zero percent return – or less.

To understand your real rate of return, you must account for inflation. If inflation is at 2 percent, meaning the cost of goods as a whole are rising by 2 percent a year, then money sitting in savings earning zero percent is actually losing 2 percent. Over the course of a decade, that would amount to a loss of more than 20 percent.

The Federal Reserve has promised to keep interest rates ultra-low until the economy gets back on its feet – that means rising housing prices, lower unemployment, increased wages and a healthy increase in inflation. The Fed thinks this will take until at least 2014.

So how can you grow your nest egg in the face of this Saver’s Quandary? Three ideas:

1. Tweak your emergency fund. It’s vitally important to keep a significant amount of money available in case you lose your job or face some other financial crisis. This money needs to be liquid, but that doesn’t mean it has to be in a checking or savings account; nearly all stocks, ETFs and mutual funds can be liquidated immediately, with the proceeds available to you the next day. Could those funds be worth less if you have to sell while the market is down? Sure, but the potential returns might be worth that risk. Consider this: Instead of holding $50,000 in checking or savings, put $25,000 in those accounts and $25,000 into a brokerage account earmarked for emergencies.

2. Consider other investments. This might be the time to make a down payment on a house, pay down your mortgage, or adopt a more aggressive growth-oriented investment strategy. Be sure to factor in your peace of mind when making these decisions. No matter how much return an investment offers, it’s worthless if it keeps you from SWANing (Sleeping Well At Night).

3. Be your own boss. Buy into a business, or help get a business started. In my book, “Starting from Scratch,” I interviewed 22 successful business owners who quit their jobs and made the entrepreneurial leap — many of them with only a few thousand dollars in the bank.

Or use some of your extra cash to go back to school to learn news skills that will increase your lifetime earning power. As the wise man said, investing in oneself is the best investment.

What are you doing to fight the Saver’s Quandary?

– By Wes Moss, for Atlanta Bargain Hunter

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3 comments Add your comment


February 20th, 2012
7:08 am

Buy AGNC – 16-19% annual return!

[...] your real rate of return, you must account for inflation. If inflation is at 2 percent …Wes Moss: Is your money earning zero percent? – Atlanta Journal Constitution (blog) This entry was posted in Rates Of Currency. Bookmark the permalink. ← Currency Wars: The [...]

Ole Guy

February 22nd, 2012
3:48 pm

Let’s take a good hard look at that nasty ole ECONOMIC REALITY: X% APY yields what’s called INTEREST INCOME/DIVIDENDS…TAXABLE at that. Now we all know (or should know) that taxes, in years to come, will most-likely go north. Do the math any way which is your pleasure, but in the end analysis, any APY on any savings instrument is going to take a financial hit. ROTH conversions for older folks, like yours truly, don’t really make much sense…unless you like losing dough.

Younger folks: ROTH! Pay up the tax now, when rates are relatively low (compared to what they’re likely to be in years to come. So you don’r benefit from the tax write-off for the year you took out the IRA…no big deal IF you maintain your economic focus on a point in time which may be 30 to 50 years downstream. Pull up the on-line calculators to see what that investment you made, back in your “YOUT”, will look like when you’re old an’ gray.

My contemporaries, the old an’gray crowd: take distributions quarterly, NOT monthly. While you can’t escape the tax burden, your account(s) will have a two-month “dwell” time in which to continue growth unfettered by a diminishing balance.

In the end analysis, it’s all nothing more than a crap shoot; knowing HOW to roll the dice.