How Do You Preserve Purchasing Power in a Tumultuous Economy?
The recent dramatic fall in equity prices around the world has made all investors nervous. They want to know how to preserve their capital and maintain purchasing power. Should they completely "bail out" of equities, and take their losses now, or risk further drops because of market uncertainty and the downgrading of U.S. debt? No one knows with certainty.
Gross believes that in order to preserve purchasing power, you should favor investments in countries with higher "real interest rates" -- i.e., the interest rate minus the inflation rate -- such as
What should you be investing in?
One investment to consider for a small part of your portfolio is
Another investment to consider is investment in gold. Gold prices also generally do not move in the same direction as common stocks and bonds. In low interest environments, and when the U.S. dollar does poorly in comparison to other currencies, gold prices generally increase. You should be aware that gold prices can be volatile. Before investing in gold, I recommend thoroughly educating yourself. An excellent book I recommend is "All About Investing in Gold," by
If you decide to invest in gold, one of the investments the authors recommend is gold bullion exchange traded funds (ETFs), because of their convenience, liquidity and efficiency. They feel ETFs are the lowest-cost way to gain access to professional management. They felt that SPDR Gold Trust ETF (GLD) is a good choice, because of its size, low cost and liquidity. Because of market volatility, you should dollar-cost average -- that is, make regularly scheduled purchases in the same dollar amount over time.
Some market experts, such as
I don't pretend to know how to predict market tops and bottoms. I do recommend, however, a diversified portfolio, with a reasonable percentage of short and intermediate-term high quality bonds or bond funds. In addition, because of the volatility in the markets, it is important not only to have a diversified portfolio but also to have some investments that do not move in the same direction of most other investments.
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Personal Finance - How Do You Preserve Purchasing Power in a Tumultuous Economy?
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