This post will discuss those typical low-risk-low-return investments you would make to ensure a comfortable retirement or to preserve your purchasing power in very uncertain economic times. Traditionally, these instruments are very safe and can guarantee a small growth in your purchasing power over time. Now, however, things have changed and it is very important that people are aware of the new risks to these traditionally risk-free investments.
These new risks stem from the vast amounts of paper wealth (discussed in a previous post) that has engulfed financial markets over the past decade or so. Our fiat currency (paper money) system has led to totally unsustainable levels of debt, entitlements and other financial promises (such as derivatives) and this gross imbalance poses a great risk to all investments in non-physical assets (like savings accounts). It is very important that people are aware of these drastic changes to the old paradigm.
The worst case scenario is an economic collapse triggered by a self-strengthening crisis of confidence in our fiat currencies as a store of value. The one and only thing that gives any value to these little pieces of paper and plastic we use to buy stuff with is our faith that these currencies will preserve our purchasing power over time, but , due to many years of fiscal irresponsibility by governments, financial institutions and individuals, this faith is now waning and can conceivably cause our paper money to return to its intrinsic value: zero. And yes, if this happens, all the money you held in the bank will be worthless.
The authorities will do their very best to avoid such a situation, however, and I am by no means claiming that the dollar will collapse next year. Although any prediction made in this time of unprecedented economic madness is wrought with great uncertainty, the more likely scenario is probably a prolonged high-inflation-low-interest rate time period. Inflation will be high due to prolonged money-printing by central banks and interest rates will be low as governments foolishly continue to encourage people to borrow and spend beyond their means.
Although such a scenario will not wipe out your savings almost overnight like an economic collapse, it will gradually eat away at the purchasing power of those savings. You see, the moment that the interest you earn on a savings account drops below the inflation rate, you are losing purchasing power. And yes, this type of situation is all too common nowadays and will just become more common in the future.
Note thought that I am not saying that you should immediately empty all your savings and retirement accounts and buy gold. Savings and retirement accounts are backed by strong institutions which will do everything in their power to protect them. All that I am saying is that you should not put all your faith in these fiat currency instruments. Please ensure that a substantial portion of your portfolio is always in real tangible assets (precious metals, productive enterprise and real estate).