I’m often asked: “With all the uncertainty in the world, wouldn’t it just make sense to put our savings and investments into U.S. treasuries and bonds until the coast is clear?”
I believe the only way to answer that questions is to first answer another question: “What is important about money to you?”
Most people would answer with:
- “I want to maintain my standard of living.”
- “I want to enjoy financial independence.”
- “I want the ability to help others.”
It is not holding cash that is meaningful. It is the ability to purchase food, clothing, shelter, transportation, take a family vacation, enjoy a good show or help someone we love.
No matter what you want to do, you need adequate income. And history demonstrates that it will cost you more next year than it did this year.
When I was in high school, I remember gas costing 35 cents per gallon. Today, it is around $3.60 per gallon. The cost of living has increased substantially over the past 30 years.
In the long run, “wealth” is better defined as “purchasing power” rather than how many dollars you have.
Today, the average joint life expectancy of a couple 62 years of age, if neither smokes cigarettes, is about 30 years. A major objective of this retiring couple is not maintaining the same balance in their savings account but rather earning a gradually increasing income to enjoy a similar standard of living.
The consistent way to generate an increasing income that keeps pace with inflation is to invest into a broadly diversified, quality portfolio of cash, bonds and stocks. This is true whether you retired during World War 2 or the market crash of 1987 or the technology bust of the early 2000s or now.
Trying to fight off 30 years of rising costs with an essentially fixed income just isn't rational.
So back to the original question: “With all the uncertainty in the world, wouldn’t it just make sense to put our savings and investments into U.S. treasuries and bonds until the coast is clear?”
There is always uncertainty. If certainty was required to permit sound investing, there would be little investing going on. History teaches that a broadly diversified, quality portfolio of cash, stocks and bonds has enabled many couples to earn increasing incomes throughout their retirements. It was not their ability to avoid market volatility or to time when to invest. Instead, it was their willingness to invest prudently into a diversified, quality portfolio that enabled them to enjoy their desired standard of living, to enjoy financial independence and to help others along the way.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.