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I’ve noticed that many people are content to keep their money in savings accounts, checking accounts, or even under their mattresses. It amazes me how obsessed people become with clipping coupons to save pennies, but they allow inflation to eat away at their life savings without a flinch. I’m certainly no Warren Buffet, nor am I an investment guru, rather just an average guy hoping to keep pace with the economy. I’ve tried to council family members and friends on beating out inflation, but I feel that my advice tends to fall on deaf ears. It’s not that they don’t trust me, it’s just that they are comfortable with doing things how they’ve always done them. If you are taking the time to read this then you must care what I have to say, and I want to let you know that inflation ended at 3.39% in November 2011, meanwhile the current average savings account rate that same month was a mere 0.20%. This means you are losing over 3.00% of your savings each month at this level of disparity, or $3,000 of every $100,000 saved.
Dividends stocks are the answer to a relatively safe investment that outpaces inflation. When you consider solid companies that increase dividend payouts consistently year-over-year, you can recognize built-in gains. Consider companies like Johnson & Johnson, Southern Company, or Automatic Data Processing Inc., even losing over 10% on the share price over a 10 year period would still net you an overall gain based on increasing dividend payouts over the same period. I’ve long held my money in companies like these, they are sound and reliable, and held their dividend payouts through the economic crash. Granted, nothing is a guarantee, but neither is a savings or checking account.
An Exchange Traded Fund (ETF) is another avenue to beat inflation. They are similar to index funds in that they follow a commodity, or an overall basket of assets, yet they can be traded on the stock exchange. Because they trade the same as a stock they can be bought on margin, or sold short. They are very similar to mutual funds in that they cover a range of investments, but they tend to have lower expense ratios. Anything that keeps your money with you is a good thing in my book! Choosing the right ETF can not only help you beat inflation, but it can also help you to mitigate your risk. Since investing in several assets spreads the risk around, as opposed to the old adage of ‘putting all of your eggs into one basket’.
Dividend stocks is something I’ve been interested in for a while, and might be intriguing enough to get me into the market, once my consumer debt is paid off.
If Apple starts paying a dividend, would you buy?
I have two dividend stocks that have done well for me, one has gone up in value considerably (about 25%) and the other has gone down about 15%. I may sell the one that’s dropped in value eventually if I find a good dividend stock replacement, but for now I am pleased with its annual divident, which is higher than most shares of its price. I know nothing about ETFs. But I plan to read up on everything in the next few months!
Interesting article. Great tips for those who are new to the investing world! Keep up the great work.
So many people are afraid to invest because they don’t want to lose their money, but you make a great point that they are already losing money by parking the money in a savings account that is paying minimal interest.
If the goal is to beat inflation, useful to consider dividend stocks that have a solid history of *raising* their dividends, year after year.
Wow, I’ve really never thought of my savings account losing money because of inflation. It seems so obvious now. Pardon me for being a little bit lacking in this area, but what is it easy to get your money out? Like say I were to put my emergency fund money into the stock market. And I had an emergency. Is it easy to get the money out without taxes eating it all away? Or is it not a good idea to invest emergency fund money?
Real sorry. I’m far below you all when it comes to knowledge in this area.
Fantastic article! I’m sad to say I share the experience when it comes to giving friends and family my opinion on their investments. I’m happy to report that some are finally listening to me after they have seen my results
I recently wrote an article “What is a REIT” and it covers real estate investing companies that give dividends to their shareholders. My niche is real estate rental properties since I own several apartment buildings, but I was an investment banker before so I just combined my 2 passion and wrote away.
Love the article here! Anyway, you gave me a lot of ideas through this post…Thanks a lot!