Low Interest Rates & Real Inflation


Low interest rates rob the purchasing power of your income and wealth.

We were taught to save and invest early to enjoy the power of compound interest.

We were taught, “If we did that and saved enough, and we could then earn 4% interest on our capital, we would have sufficient income for our retirement without eroding our savings”.

That’s not happening now.  Interest rates are too low.

dollar

What we’ll need soon to replace a hundred dollar bill

The Wall Street Journal article “Interest rates take a pandemic dive” (1) shows that banks are paying a pittance on deposits, but customers don’t seem to care.

The article says: Some banks are slashing deposit rates. Others are keeping already-low rates at next to nothing, sometimes 0.01%. But customers keep stashing cash at banks anyway.

Big banks can afford to be stingy because they already are awash in deposits. Total deposits at U.S. commercial banks have swelled to about $15.9 trillion, up from about $13.2 trillion at the start of the year, according to the Federal Reserve.

The biggest banks, such as JPMorgan Chase JPM -1.23% & Co. and Bank of America Corp. BAC -2.38% , generally keep their rates low no matter what is happening in the rest of the economy. They already have mountains of deposits, as well as loyal customers who bank with them not for high deposit rates but for ubiquitous branches, flashy apps or because their paychecks and bills are already tied to their accounts there.

Online-focused firms including Ally Financial Inc. ALLY -0.10% and Goldman Sachs Group Inc.’s GS -1.62% Marcus, on the other hand, have touted their high rates over the past few years as a way to attract deposits. But even those banks are now cutting rates. Ally, Marcus and Capital One Financial Corp. COF -1.29% , for example, have dropped their deposit rates from about 1.6% to around 0.5% over the past eight months.

One depositor made the comment “It just made no sense to keep my money in banks anymore.  It might as well be put under my bed.”

This comment is uncomfortably close to being 100% accurate.  Yet money under the bed is also at risk to deteriorating purchasing power.

We have to increase risk to get earnings that are higher than inflation.  Those earnings need to be much higher than inflation because anyone who has gone shopping knows that the inflation statistics make no sense.

The Investopedia article “How Does the Current Cost of Living Compare to 20 Years Ago?” (2) shows how inaccurate the Cost-of-Living-Index might be.

Many people feel that, even with full-time work, they simply don’t have the income necessary to live the lives they want. Even when it comes to just the basic essentials such as food, rent, car payments, or tuition fees, it can often seem that a dollar today just doesn’t buy what it should. As it happens, this isn’t just economic paranoia. In fact, the prices for daily goods have increased considerably since 1998, above and beyond what can be accounted for by inflation, giving the dollar much less buying power than it had just 20 years ago.

The problem is that the cost of essentials such as food, housing and transportation are climbing faster than statistical inflation.

Here are the key points from the article:

investopedia.com

This problem hurts all demographic sectors.

Boomers who are thinking about how to retire might not have enough to do so.  They’ll run out of money.

Their solution is to keep earning.  If you have been reading this site for long you know I ignore the idea of retirement at 65.   There is no reason to stop earning at 65 when, in this era, our experience is worth more than the cost of getting it.

Boomers should be able to enjoy a pinnacle career and beat rising costs.

Younger generations have a tougher time because its harder to just keep up with the cost of living, much less save.

One compromise for all generations is to invest in well diversified, high yielding, good value stock market index ETFs.  See details below.

Gary

Add Safety, Profit & Get Paid Double

The next four years will be a period of high overseas stock growth.

The chart below shows the last 26 years of real-time forecasting by the global equity analyst we track to make our portfolio decisions.

The analyst is Keppler Asset Management and the index they create The KAM Equally Weighted World Index is 15.4% below the value that the analyst forecast four years ago in September 2016.

The chart shows how in the past, two and a half decades there have been four opportunities (red Xs) when the entry levels in global markets were below or around the lower valuation band.  In the previous three low points like this, there has always been the highest growth and positive returns three to five years later.

keppler

 

So it’s good to know that if you invest in global stock markets overall, now, you’ll make capital gains over the next four or five years.

More importantly you get paid more income now!

Current markets have turned economic history upside down.  Normally bonds pay the highest interest rates and add safety to a portfolio.  Not in 2020.

This year equities have been paying a higher yield than bonds.

As of November 2020, according to Ycharts.com, (1)  AA bond yields are at 1.59%.

ycharts.com

 

The US MSCI Index pays a modest 1.68% as of November 2020 .  That’s a terrible yield, but better than the 1.59% you can get in AA rated corporate bonds.

Just because US stocks pay more than dollar denominated bonds, does not mean they offer the best income deal.  In fact US shares pay one of the lousiest average yields of the 46 stock markets we, via Keppler, monitor around the world.

Eight solid, top value stock markets (shown below) not only add diversification and the best long term profit potential, they pay more than double the average US yield.  They pay  3.57% compared to the US yield of 1.68%.

keppler

This is why my core stock portfolio consists of a handful of top value share ETFs and this position has hardly changed in five years.

Let me explain why this strategy adds safety, increases long term appreciation potential and pays almost double short term income right now.

During the past five years, I have been steadily accumulating the same good value ETFs.  I have traded only five times, so my trading costs, my fuss, fiddle and time spent have been kept to an absolute minimum.

I have been investing in iShare country ETFs.  Each one invests in the MSCI Index of one of the top value markets above.

My strategy protects against stock market volatility and yet has potential for the best gains long term from rising share prices by holding an equally weighted portfolio of the best value based country ETFs.

The Purposeful Investing Course uses Keppler analytics to track 46 stock markets around the world into determine which markets offer the best value.

Since no one knows what the future will bring, investing in value makes the most long term sense.

Plus Value ETFs are Safer

The people who dominate stock markets include a pack of thieves.  This fact has always been true.  We were recently reminded of this fact when Wirecard AG, one of Europe’s most prestigious companies, listed on Germany’s premier stock-market index, the Dax 30 fooled everyone including its top grade, longtime auditor, Ernst & Young GMBH.

The shares in German fintech company Wirecard AG (symbol WDI fell 63.74% as it filed for insolvency proceedings, after revealing that more than $2 billion in cash missing from its balance sheet was all a fraud.  The company’s market value fell to less than €500 million from almost €13 billion in a week.

Investors have seen this type of rip off again and again, really big scams from Enron to Bernie Madoff and these are just the tip of the iceberg.

Shares in stock markets are manipulated all the time.  Stock markets (in fact almost all types of markets) are led by sharks plain and simple.  Count on this fact.  This is the nature of the beast and the number one goal of many big businesses is to take as much of your money as they can to line their pockets.

In the Wirecard AG example many  thousands of investors have seen their hard work, their thrift, their security and hopes for the future disappear, even though they seemingly did everything right by investing in a blue chip, new era, high tech company.

A study of 92 years of investment returns shows that, despite the fraud and cheating and deceit, stock markets are still a good way to make your money grow… if you invest long term and diversify.

keppler

Our Purposeful Investing Course (Pi) strategy makes it harder for cheaters to grab your wealth because it’s very hard to manipulate an entire stock market, much less a dozen or so stock markets around the world.

Manipulators have a hard time tricking an entire market, especially larger markets.  If you get the best value country ETFs, your chances of long term profits improve.

Pi teaches an an easy, simple and effective approach to zeroing in on value because little time, management and guesswork is required.  You are investing in a diversified portfolio of good value indices.

Sticking to math based stock market value and country ETFs eliminates the need for hours of research aimed at picking specific shares.   Investing in an index is like investing in all the major shares of the market.  You save time because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pi portfolio consists of iShare Country Index ETFs managed by Black Rock, Inc.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that tracks an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund as well so such ETFs provide diversification and cost efficiency.

My developed market portfolio has been diversified into eight developed markets: Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

iShares Country ETFs make it easy to invest in each of the good value markets.

The ETFs provide higher income and incredible diversification for safety, plus the highest long term profit potential.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for most stock markets around the world.

Here’s how you can create your own good value strategy.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets).  This analysis looks at the price to book, price to earnings, average yield and much more of all 46 markets.

This year I will celebrate my 52nd anniversary of global investing and writing about global investing.  Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades.  This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in the Pi course.

Time is your friend when you use a good value strategy.  The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.

A 45 year portfolio study shows that holding a diversified good value portfolio (based on a  good value strategy) for 13 month’s time, increases the probability of higher performance to 70%.  However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $124.50 off the subscription.

Guarantee

Enroll in Pi.  Get the basic training, the 46 market value report and access to all the updates of the past two years, plus all new updates over the next year.

I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential. 

Due to the COVID-19 pandemic we have cut the subscription to $174.50.  You save $124.50!

Then because this global recovery from the pandemic is going to take years, we’ll maintain your subscription at just $99 a year rather than $299.  Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.

Click here to subscribe to Pi at the discounted rate of $174.50

Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.

Gary

(1) Ycharts.com corporate bond yields

(1) www.wsj.com/articles/deposit-rates-are-taking-a-pandemic-nosedive-11605177008?mod=itp_wsj&mod=&mod=djemITP_h

(2)  www.investopedia.com/ask/answers/101314/what-does-current-cost-living-compare-20-years-ago.asp