By Darren Wurz
If you’re like most people, you probably had a piggy bank as a kid. Maybe you wanted to save up for a new toy, some candy, or even something bigger and more important, such as your first car. As you grew up, at some point that piggy bank turned into a savings account in an actual bank and you started earning interest. I remember opening my first bank account in grade school and keeping track of the pennies I was earning in interest.
Even if your parents never taught you about compound interest or how to navigate the investment market, you likely learned the importance of saving up for something you really wanted. Unfortunately, what most people learned about savings stops with setting money aside in a bank account. But there’s more to saving than merely transferring money every so often into a bank account. In this case, contrary to the popular saying, what you don’t know can cost you.
The Fatal Flaw
Imagine for a moment that in 1950, a relative of yours put $1,000 into a jar. They buried that jar in the back of the family property but passed away before they were able to reveal the secret stash and the location. Now you are getting ready to plant a garden and you stumble upon the jar.
For you, it’s a thousand dollars, and you aren’t sad to find it. You might buy a new computer or use it to pay off some debt. But what you can’t see just by looking at the money is that the jar is missing something. According to this inflation calculator, about $11,128 worth of purchasing power went missing in the last 72 years. Would you feel ripped off if you discovered that you could have bought $12,128 worth of stuff in today’s dollars?
Inflation is the silent killer of the value of money, caused by the increase in currency produced by the government. By adding more dollars to the market, there is more money to spend, but the power of each dollar gets a little weaker for every dollar added.
Think of it as paint getting watered down to stretch the paint further. You can keep on painting, but you will discover that it gets harder and harder to get that paint to do what it’s designed to do. If you keep adding water to one gallon of paint, you may end up with five gallons, but you also end up with far more water than paint. In the same way, inflated money is diluted from its former value.
Burying Your Money
One of the sad truths about savings accounts is that you are rewarded for your diligence and good savings habits by actually losing your money as it sits there. Currently, the annual inflation rate for the United States is 8.6% for the 12 months ended May 2022. (1) The very best annual percentage yield for a savings account is only around a paltry 0.5%, so as your money sits in savings, it shrinks a little every day!
Essentially, this means that placing your carefully earned money into a basic savings account is hardly better than placing it in a hole in the ground until you want to use it. Like a child sneaking a cookie out of the jar, time is pilfering your goods little by little.
Save Your Savings
So what can be done? How do you rescue your savings from a long, slow death by attrition? The antidote to inflation is to get your funds into an investment vehicle that provides a return that outpaces inflation.
Stocks tend to greatly outpace the rate of inflation over time. However, stocks also can be risky and experience large fluctuations in value. For this reason, many are reluctant to invest their savings. However, a conservative investment strategy carefully designed to minimize the swings in the stock market might be able to provide greater compound growth than a savings account while minimizing risk. Also, using a standard brokerage account you can keep your funds accessible and liquid in case you need them.
By putting your funds into a well-managed investment strategy you could stop the negative flow that inflation causes over time. Not only that, you could also potentially start building your wealth at an exponential rate through the power of compounding interest. Or, if market volatility is too much of a concern, a high-interest savings account that is also FDIC insured could be the right fit for you.
We Can Help You Safeguard Your Investments
As you can see, there are various ways to ensure your savings continues to grow, other than just sitting in a savings account with a low interest rate that can’t keep up with inflation. In today’s economy, it’s more important than ever to invest your hard-earned money wisely to protect it from the effects of skyrocketing inflation.
At Wurz Financial Services, we have the experience you need to help make that happen. In fact, we have an investment strategy specifically designed for excess cash reserves. We would love to help you navigate your options and get your hard-won savings on the right track. Schedule a no-obligation consultation, and together let’s find out if we’re the right people for you to depend upon during your journey to a comfortable retirement. Contact us at 859-291-9879 or email@example.com today!
Also, join us at one or all of our free webinars:
- Social Security 101: The 3 Rules to Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough to Retire?
- Retirement Planning Strategies for Solo & Small Firm Attorneys
Darren Wurz is a fee-based financial advisor and co-owner of Wurz Financial Services, where he operates the Northern Kentucky/Cincinnati office. He is a CERTIFIED FINANCIAL PLANNER™ and has a master’s degree in financial planning from Golden Gate University. Darren specializes in serving the unique financial planning needs of attorneys and law firm owners. He is the host of The Lawyer Millionaire Podcast and author of The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence, published by the American Bar Association.
Darren is a member of the American Bar Association and the Financial Planning Association. He is also active in his local community as a member of the Northern Kentucky Bar Association, Covington Business Council, and Northern Kentucky Chamber of Commerce. To learn more about Darren, connect with him on LinkedIn.