Holding Cash Is Guaranteed To Lose You Money
Keeping your money in a bank account, a GIC earning barely any interest, or worst of all in cash means that you are GUARANTEED to lose value EVERY SINGLE DAY when inflation is high.
The biggest losers during periods of high inflation are savers and retirees and workers living on fixed incomes. When prices rise, the value of money falls and the true value of your savings declines.
The big winners are Governments with debt and owners of land and physical assets which tend to appreciate in value. Inflation makes it easier for the government to repay and service its debt because it is now effectively lower while the tax base has gone up with increasing prices and incomes. Physical wealth like land, factories, assets tent to retain their value and there can even be increased demand during periods of high inflation because if you’re holding money you just have the paper in your hand at the end of the day, if you have an asset you can use it to create value.
You have to be investing in income producing assets and my preferred asset is real estate:
The property generates income through the rent it collects
Rent increases because fewer people can afford to buy a property so there is higher rental demand
The value appreciates because the replacement costs go up (materials, labour and financing costs increase)
The mortgage debt gets eroded by the inflation and made smaller on a relative basis
Inflation hasn’t been this high in Canada 40 years – will you be a saver or an asset investor?