I have been following the market lately (especially commodities), and it appears to me that the reason for Silver breaking $20 and Gold breaking $980 and Oil reaching $103 per barrell, is not because of an unbelievable immediate demand for the usage of these products (even though there has been a very nice market for them lately) but because of the falling dollar. Since November 2005, the dollar has dropped twenty cents. That means that your savings has gone done down by 1/5.
And when you look at it that way, naturally, you would think that everything else should cost one fifth more (and you should get paid 1/5th more!) just to break even. Which is what makes falling home prices so scary. Homes should be skyrocketing in value! If you bought a house at the end of 2005 at $100,000 dollars, your house should be worth, not including appreciation, $120,000 dollars, but with the falling home prices, it may be worth only $90,000 dollars, which means that your house would have lost 25% of it’s value. And when you add in the possibility of a recession, already America’s present finances are not looking good, and we haven’t even gotten to the baby boomers starting to draw money out of Social Security!
So how do we combat this? First, you cannot make good financial decisions and expect to keep your finances afloat without a good financial background, especially in this day and age. So first, become financially educated, once you do that, you have finished half the battle.
Secondly, look for other places to put your money, other than the bank. It may be the “safe” and traditional thing to do, but when you really think about it, how safe is it, if the bank is giving you 2% interest, and the government is inflating at 10% interest? In reality, inflation is stealing from your bank account! That is why it is important to have a good financial education. If you realize that you are and have been losing 8% of your money per year, for the last 2 years, than it doesn’t really matter if your investment doesn’t always perfectly pan out. If you keep on losing 8% per year, your savings will eventually become almost worthless anyway!
And finally, if you prefer maximum safety, you might want to get into precious metals, but be very careful, when an investment is making all the news and headlines (like gold and silver), that is the time to usually stay out of that market. Most of the finance books that I have read recommend that procedure, and so has my bit of stock market experience (sometimes to the chagrin of my virtual bank account!)
I hope that this post has helped you and I welcome your comments.