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’.