Remember, A Dollar Is Not Always A Dollar

Predictions for 2011 and BeyondIn case you missed the recent “Predictions for 2011 and Beyond” conference call hosted by Jason Hartman and Empowered Investor Network, one of the primary topics covered was the fatal flaw made by many investors who assume a dollar is always a dollar. This basic economic fallacy can kill your portfolio, and leave you with much less money in your retirement years than you had hoped.

* By the way, you can buy the ebook containing all the information from the conference. The $197 price includes a private 30 minute consultation with Jason Hartman.

But back to the dollar. The critical concept to understand is that a dollar today is not worth the same as a dollar one year from today, or even ten years from today. The real value of a dollar, expressed in terms of what you can actually buy with it, continually erodes over time. The reason for this is, of course, inflation, which has been a constant factor in our economy in a major way since President Nixon took the country off the gold standard in the early 1970’s, and granted the Federal Reserve de facto permission to create money out of thin air.

The downside to allowing the Fed chairman to snap his fingers and create a billion dollars is that this glut of new cash dilutes the value of the dollar in your pocket. End result? In five years, it will likely take $15 to buy what costs $10 today, while, at the same time, prices are rising. This double whammy is what you should keep in mind when you reflect on the final number in your stock portfolio at the end of the year. Not only must you subtract administrative costs and broker fees, but don’t forget about that little thing called inflation which makes your end of the year dollars worth less than you beginning of the year dollars.

How much should you factor in for inflation? The government will dutifully report some fractional percentage less than 4%, to keep the citizenry from flipping out, but that doesn’t include the cost of food and energy. An honest calculation of the annual inflation percentage is closer to 10%, which becomes your profit baseline. Anything less than that number in your annual return on investment and you’re moving backwards.

The Solomon Success Team

SolomonSuccess.com