Erosion of Dollar’s Value Has Encouraged Families to Make Risky Investments, Research Organization Says
Great Barrington, Mass. – The relentless erosion in the purchasing power of the dollar – caused by questionable government monetary and fiscal policies – has encouraged many Americans to accept investment risks that would have been unnecessary “if a dollar was still worth a dollar,” the American Institute for Economic Research claims.
“We first published our popular book ‘How to Invest Wisely’ in 1947. At that time, the phrase ‘sound as a dollar’ meant something. It didn’t have the ironic ring it has today,” said Lawrence S. Pratt, editor of the recently updated 2010 edition of the book.
Pratt notes that since 1947 the dollar has lost nearly 90 percent of its value. “And there is no end in sight.” To buy what $100 purchased in 1947 a family today would need $972. In the last 20 years alone, since 1990, the dollar’s value has fallen some 65 percent.
Six decades ago, Pratt said, most families’ wealth consisted of savings accounts, savings bonds, life insurance policies and money tucked away in cookie jars and shoe boxes.
The investments, as they were, were safe and paid relatively low interest rates. Interest on passbook savings accounts, for example, was typically calculated on the minimum balance during the calendar quarter and was posted at the end of the quarter. This meant that any funds withdrawn or deposited during the quarter earned no interest.
“With the declining value of the dollar,” however, “everyone concerned with maintaining the family’s standard of living has been forced to accept risks, often risks they don’t understand and that their parents and grandparents would have avoided,” Pratt says.
“Today, even working-class and middle-class families typically are invested in the stock market,” Pratt noted. “Some of the pension funds they will need when they retire may, in fact, be invested in high-risk stocks, mutual funds, real estate investment trusts (REITs), and even hedge funds.”
According to the Investment Company Institute, some 51.2 million U.S. households, or 43.7 percent of the total, own shares of mutual funds or other U.S.-registered investment companies, with a combined value in the neighborhood of $10 trillion.
“What most people call investing today is, in fact, speculation, based on the hope that we – or someone we’ve hired – can identify assets that are somehow underpriced or overpriced in the market. All too often this leads to chasing after financial fads,” said Pratt.
“The depreciation of a dollar’s value could even accelerate as we come out of the recession and the effects of the government’s recent spending-spree sink in,” said Pratt. “That – in turn – may cause Americans to jump into even riskier investments in a never ending spiral.”
Copies of AIER’s “How to Invest Wisely” are available for $12.00 at www.aier.org.
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The American Institute for Economic Research (AIER) is a 77-year-old nonprofit educational organization.