Some very interesting offline discussions have come up around my little posts on money. A couple of my friends have pointed out that the sock-under-the-mattress technique has flaws. For one thing, inflation guarantees that your money will be worth less next year than this year, and worth still less the year after that. Even if the inflation rate is 1%, it means you lose a dollar out of every hundred in that sock, and ten bucks out of every thousand, every year.
I can’t disagree with that. Like every other person of my vintage, I recall when there was such a thing as a ten-cent chocolate bar, and a five-cent popsicle. I remember my mother being cross about butter at sixty-nine cents a pound, and my father similarly annoyed at gas costing sixty-nine cents a gallon. My first job paid me ninety cents an hour, and that was standard minimum wage for girls. (For boys it was more – this was before the equal-pay legislation. The good old days weren’t all that good.)
Inflation is a fact of modern life. Even a low-interest investment, like a GIC, can keep you from falling as far behind. I have no idea if there are any upfront fees for GICs, but if there are, every dollar eats a bit of that interest. And, of course, the main catch is that you have to have money to leave tied up for one-to-five years.
Now, if you have that money, then by all means it’s worth looking into something that will give you a little edge up on inflation. My own tips and tricks come from the many years when it seemed that every dollar I earned was spoken for three times over, and a bottle of wine was an unaffordable luxury.
I am distrustful of people who tell me how great and easy it is to invest when they have something to gain from it. I was once told by a financial advisor, during my can’t-afford-a-bottle-of-wine years, that he could show me how to have money to invest without it costing me more than I was currently paying on my bills. His suggestion was that I renegotiate my mortgage for a longer term and smaller payments. The “extra” money could be invested, with him, of course.
What he conveniently left out of his little equation was any fees the bank might charge for renegotiation of the mortgage, and the extra interest I’d be paying on the longer mortgage. (I’d gone for the shorter term precisely because it saved me thousands in interest.) He had the nerve to call this “free” money, because my monthly bills would stay the same. I call it a sleazy ploy to get someone else’s money to play with. (Ooooh, sorry – are my fangs showing?)
Strategies that allow someone else to play with your money – while, I may add, you’re paying them to do it – always strike me as questionable. Guaranteed investments, maybe, if you can commit the funds. Gambling, no. I take my risks in other ways. If I want to gamble, I can do it for a dollar with a lottery ticket.