In this article, we’ll explore all the different options that we can take to grow our money and ultimately outpace the crazy rate of currency degradation that we looked in the last post. By the end, it’ll become quite clear what the best option has been. But is it enough to win in this money game of debasement?
Saving money in a bank account or money market account is an absolute losing move. As of July 2022, the national average interest rate for savings accounts according to Bankrate was .11%. Not 1%. Almost zero. Point eleven percent. That’s very clearly a losing move.
How about something like a CD (certificate of deposit) account? Bankrate tells us that the national average is .51%. The yield on the 10-year treasury is only 2.1%, which is up significantly since November 2021. Bonds? The US 10-Year Government Bond Rate is 3.1%. Well, that’s certainly not great when inflation is so high. All of the above fail miserably when compared to the rate at which the dollar is getting debased.
Some of these options, like bonds, might be alright if you’re already extremely wealthy, but not if you’re trying to generate wealth. So, what choice do people have who are trying to create wealth?
Stocks and Real Estate
The stock market and real estate. Stocks and real estate have both exploded over the last decade because of such low interest rates and high money creation. Stocks have outperformed real estate and every other major asset class quite significantly since 1928. Take a look at what a $100 investment is worth now in the various assets seen below.
| S&P 500 (includes dividends) | 3-Month Treasury Bill | US Treasury Bond | Baa Corporate Bonds | Real Estate |
| $761,710.83 | $2,083.06 | $8,526.95 | $54,237.64 | $4,689.35 |
Remember that the most important question is: are you outpacing the rate of debasement and by how much? Over the years, there have of course been extreme winners in the stock market like Apple, Amazon, Google, and Tesla who have clearly outpaced the rate of debasement. But those types of extreme winners are rare and very difficult to pick with consistency. As a result, average investors, who are either busy with life or just unsure of how to navigate the market, often hire a money manager or financial analyst to make the difficult decisions for them in the hopes of finding a few big winners.
But unfortunately, even the Ivy League, high-achieving fund managers rarely beat the market indices. In fact, nearly 80% of all actively managed equity funds that we pay extra for to outperform actually underperform their benchmark index, according to analysis from the most recent SPIVA report. If you’ve ever read an investment book or magazine, you’re probably all too familiar with this type of alarming information. It’s been compiled and talked about in countless financial publications and books over the years, with superstars like Tony Robbins devoting a 629-page masterpiece to the topic titled Money: Master the Game.
That book is chock full of great information and provides insights into the specific strategies of investing legends like Ray Dalio, Paul Tudor Jones, Warren Buffett, and many others. Robbins highlights the misunderstandings and lies told to investors that put them in grave danger when investing, such as high manager fees. These high fees greatly erode our long-term wealth potential. And the worst part is, these fees are going to managers who underperform the major indices. Robbins concludes that “a portfolio of low-cost index funds is the best approach for a percentage of your investments because we don’t know what stocks will be ‘best’ going forward.”
Once again, with any simple investing knowledge, you’ve most likely heard that index funds are an excellent long-term strategy. But we’re not being told the whole truth. In the next post, we’ll examine how long it actually takes an average investor to create wealth through investing in index funds. Is it enough?
Thanks for reading! If you enjoyed this, check out the other articles and don’t forget to follow me on Twitter @andrewdfarrar for up-to-date crypto content. If you haven’t already checked it out, my book, The Modern Investor, is up for sale on Amazon! It gives a much more complete and entertaining view into the digital asset market. In these crazy times, it’s never been a more important time to learn about this new asset class.