Okay, I have a bone to pick with most of the blogging community on an issue that most of you are familiar with. Most personal finance books, and indeed most bloggers will say that you should be building up a savings or emergency fund equal to three to six months of your salary. Most people will also tell to this in a ‘safe’ accessible money market or savings account. Sounds like good advice right?
– WRONG. DEAD WRONG.
I have news for the blogging community and our readers. Don’t buy into this advice.
Instead, if you need emergency funds, you should be putting your cash straight into safe, boring high yielding stocks.
Let me illustrate for you: Let’s say you get $10,000. From an inheritance, a work bonus, a gift from your folks, whatever. Now, lets assume that you find a nice stock or mutual fund that’s paying you 9% annually. Now, 9% on %10,000 is $900 annually. Now, compare this to the standard “savings account”, at 2.2% or the prevailing rate of money market accounts at 3.3%. That’s $220 and $330 dollars respectively annual from the “safe” bet. You’ll make nearly three times as much from the stock/mutual fund option. Even accounting for transaction fees and some stock price fluctuations, you’d come out ahead with the stock option.
Now you might be thinking I’m taking crazy! What about the risk of losing all your money in the
stock market? Yes, there is some risk in the stock market. But you need to balance this against the declining purchasing power of your dollar. If you don’t believe me, take a gut check. Are you paying more at the super market, for gas or for utilities than last year or a couple of years ago? I bet you are. Also, check the statistics. The dollar has been taking a beating for the past three years. Your greenbacks are worth less and less every year.
Finally consider this. America is a capitalist country. He or she who owns, is in control. Buying into the bad advice of building up an emergency saving account hampers your chances for real prosperity. The widespread belief in this falsity is what social reformers like Malcolm X mean when they say, “You’ve been had, You’ve been hoodwinked”. By socking your money into a low yield savings account you’ll be on the wrong end of both the declining dollar as well as the basic principle of capitalism, which is that owners are in control.
People, put your money into stable high yielding stocks. Forget about money market and checking accounts.
Best,
James
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