Cash No Longer a Vehicle for Saving

March 11, 2014

There is little incentive for Americans to save today, says R. David Ranson, a senior fellow with the National Center for Policy Analysis and head of research at H. C. Wainwright & Co. Economics.

The United States' financial capital supply comes largely from Americans' savings. But with the Federal Reserve's zero interest rate policy and government incentives that encourage consumer spending, it is not realistic to expect savers to fuel economic growth because there is little reason to put money into savings.

To guard against the Fed's price manipulation through zero interest rates, individuals should use permanent portfolios that contain a mix of stable assets.

  • The idea of "permanent portfolios" was developed in the 1980s by financial author Harry S. Browne. He advocated investing in equal weights in assets in four major categories: stocks, bonds, gold and commodities.
  • A similar idea was advocated by Ray Dalio, an investment guru, who advocated allocating weights to each investment contribution based on the level of risk.
  • Both of these portfolios are incredibly successful compared to returns from cash. By using a constant mix of selected assets, investors can mimic the long-term stability of cash while getting a higher return.

Ranson writes that these types of portfolios -- competing investment funds with highly stable asset mixes -- are likely to become more and more popular, serving as an "irrepressible form of private money."

Source: R. David Ranson, "The Federal Reserve Orchestrates the Death of Cash as a Vehicle for Saving," Forbes, February 21, 2014.

 

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