Inflation's hidden cost: forcing families to make riskier investments
Back when the dollar was sound, American families invested in simple – and safe – instruments like savings bonds. Now, thanks to Washington’s inflationary policies, they have to chase higher – and riskier – returns.
Great Barrington, Mass.
The American Institute for Economic Research (AIER) first published a book called “How to Invest Wisely” in 1947. Since then there have been vast changes in the United States and world economies, especially in the financial markets. One of the biggest changes has been the relentless erosion in the purchasing power of the dollar.
Six decades ago, the phrase “sound as a dollar” meant something. It didn’t have the ironic ring it has today. At that time, Americans believed that the dollar was “good as gold.” Most families’ wealth consisted of savings accounts, savings bonds, life insurance policies, and money tucked away in cookie jars and shoe boxes.
Today, even working-class and middle-class families typically are invested in the stock market. Some of the pension funds they will need when they retire may, in fact, be invested in high-risk stocks, mutual funds, real estate investment trusts (REITs) and even hedge funds.
Have Americans simply become riskier over the years? No. They’ve been forced to chase higher returns because inflationary policies of the federal government have undermined their traditional forms of investment.
Two generations ago, the investments of most Americans were safe and paid relatively low interest rates. Interest on passbook savings accounts, for example, was typically calculated on the minimum balance during the calendar quarter and was posted at the end of the quarter. This meant that any funds withdrawn or deposited during the quarter earned no interest.