inflation vs interest on investments

[RagJohn]

The law is used as a rule of thumb, to roughly be able to gauge compound interest. You take the rate of annual interest, divide it into 72, and have a close approximation of how many years it takes your money to double, if you let the interest stay in that investment, earning interest on that interest. So, a rate of return of 3% per year takes 24 years to double your money. A rate of 10% takes 7 years to double your money. We have experienced an average rate of inflation of 5%, since I started watching it in 1970. Gold was $135 an oz, gasoline was 40c a gallon, a big, nice new car was $4000. Prices have doubled every 15 years, on most things. Some things more, some things less, but on average, a 5% per year loss to inflation. Now think about what this means. If your investment makes 7% per year, and you pay out 40% in social security and income taxes, you clear only 5% per year. Inflation takes all of that, so you risked your money for NOTHING. The price of gold does not steadily keep up with the rate of inflation, but it DOES "catch up" in price, eventually. So you can't put money you need within the next year into gold, because of the risk that the gold price will (temporarily)go down, so you lose if you HAVE to sell some gold to pay your living expenses. Minimum wage was $1.60 in 1970, you cleared $1.25. With one hour's minimum wage work, you could buy 3 gallons of gas. Today, with gas at $2.80 per gallon, you'd have to clear $8.40 per hour at your minimum wage job. However, you clear about $4 per hour. In order to clear $8.40 per hour, you'd have to gross about $12 an hour. With the other wages based upon the minimum wage, a skilled mechanic, etc, should be making $70 an hour gross, but he's making $20 an hour. That's why everyone is hurting so badly, compared to how it was in 1970. The vietnam war nearly ruined our economy,basically. As this stupid Muslim war is doing to us today. A guy puttig nuts on bolts, at a union factory job in 1970, cleared $5 an hour. Today, he should be clearing $35 an hour, to be as well off. He'd have to gross nearly $60 an hour to do that.

If there's 5% annual inflation,and you bury, say, $100,000 in US currency, when you dig it up in 15 years, it will buy only $50,000 worth of goods and services. If you bury $100,000 worth of bullion gold coins, tho, it will still buy whatever that many ozs of gold will buy, in 15 years. Almost no risk to you at all, as long as the gold is hidden, and scattered amongst several places, and you tell nobody about it. you most certainly CAN buy and sell gold coins, without showing any ID, too. Just beware, a lot of gold dealers GOUGE you on the price, as vs the "spot price' of gold. Search carefully on the Net, to find someone who charges onl 3% above the spot price, and who pays 97% of the spot price when you sell to him. You have to travel to this guy's locale, or you have to pay the PO a lot for insured mail, and take his check (ie, tell Big Brother about your deals) Others charge as much as 15% each way, so you are getting ripped off if you deal with pawn shops, etc. Small time purchases of gold coins have to be done at coinshows, gun shows, etc, between private parties, only for cash. Otherwise, you risk bringing Big Brother into your affairs, and not doing so is really what dealing in gold is all about.

If you make 20% per year on an investment, you pay out 8% in SS and other taxes, so you clear 12%. Then you lose 5% to inflation, so you REALLY only make 7%, on the HIGH RISK investment necessary to gross 20%. Now do you understand why so many people seek the 40% per year returns offered by the better hedge funds? The hedge fund manager charges 2% of GROSS, each year, whether he makes you any money or not! If he does show a profit, he charges 20% of that profit, too!. So, let's say you give him a million $ to invest for you. He is going to charge you $20,000 per year, just for "letting you into" his fund. Let's say that he makes 20% for you. That is $200,000, right? Except, he takes $40,000 of that as his fee, PLUS the $20,000. So you end up with only $140,000. then you lose 40% of that to taxes and SS, which reduces your take to about $85,000. Then you lose $50,000 to inflation, which leaves you with a whole$35,000 return, on a million $ invested. That's right, a whole 3.5% left of value increase, out of $200,000 your manager "made" for you. :-) So of COURSE such investors want to make 40%, per year, because all they really end up with is 17%, actual increase in value. For high risk investments,you'd BETTER make 17% after all is said and done. Or you have to get your money out from under Big Brother's thumb, and doing so is illegal, if you live in the US, or if you live overseas, but retain your US citizenship. The entire system is rigged to see to it that the "little guy" REMAINS a wage slave. It was set up that way over 100 years ago. You CAN beat this system, but it takes levels of discipline and risk taking that very few are willing to put forth.

If all you are making is 5% on your money, and you are paying taxes on that interest, you are LOSING money, due to the 5% inflation rate. Government NEVER admits how much inflation really exists. Doing so is likely to scare the sheep that they are busy shearing (by printing ever more money).

Edited December 24, 2010 by RagJohn

[merjet]

The Rule of 72 - Why it Works

[Brant Gaede]

That 2% fee is on-its-face deceptive for those not inclined to do the math. The 20% is fair, the 2% is long-term devastation to your assets. Also, hedge funds blow up all the time all over the place.

--Brant

and most mutual funds are high-priced garbage

[RagJohn]

I believe that some mutual funds charge a similar sort of fee, but not as big, I suppose? The mutual funds, in many cases, have ADMITTED to aiding and abetting fraud, by taking money entrusted to them, and giving it to Bernie Madoff. They charged their clients, for doing NOTHING. I'd bet that most of the rest of the funds did the same. They CLAIM that they are 'working" to find good investments for you, but they are LYING.

[merjet]

I believe that some mutual funds charge a similar sort of fee, but not as big, I suppose? The mutual funds, in many cases, have ADMITTED to aiding and abetting fraud, by taking money entrusted to them, and giving it to Bernie Madoff. They charged their clients, for doing NOTHING. I'd bet that most of the rest of the funds did the same. They CLAIM that they are 'working" to find good investments for you, but they are LYING.

I don't believe there were registered mutual funds among Madoff's victims. A list of his victims is easily found on the Internet, but the list is far too long for me to want to look at all of them. When I began looking once, one victim was Alyssa Rosenbaum. Ayn Rand was Alisa Rosenbaum.

Edited December 24, 2010 by Merlin Jetton

[RagJohn]

given the restrictions commonly insisted upon to join a hedge fund (net worth of 2mill, annual income of 1/4 mill, sophisticated investor, etc, there aint enough such INDIVIDUALS to even BEGIN to vest all the hedge funds. A LOT of that money MUST be coming in from managers of mutual funds, without the knowledge of the fund's little guys, bet on that.

[Brant Gaede]

given the restrictions commonly insisted upon to join a hedge fund (net worth of 2mill, annual income of 1/4 mill, sophisticated investor, etc, there aint enough such INDIVIDUALS to even BEGIN to vest all the hedge funds. A LOT of that money MUST be coming in from managers of mutual funds, without the knowledge of the fund's little guys, bet on that.

If it's not in the prospectus, it'd be civil if not criminal fraud. In years of reading financial media, I've never encountered this kind of story before.

--Brant

[RagJohn]

Given all the frauds and cheats revealed by 9/11 and the subprime meltdown, do you doubt that there's still more such scum that have not yet been caught? I know an ex-CFO who brags about all the crminal activity that he got away with, with and SEC inspector right with him as he did it. He eventually had to show the Feds how to do it, as part of his plea bargain. He got off much too lightly, in my book. If everyone that he screwed over got to slap his face, just once, bare handed, he'd be hamburger.