Money - Risks of losing value

There is something investors need to see and be informed on why they ought to be worried about their good savings in the bank today. To prove a point, let us look at things in perspective and slowly digest on the topic.

 

Over the years, It is very apparent the purchasing power of every individual had dropped very significantly. Just consider how much one has to pay for a unit condominium now compared to 10 years ago. While economic always points us to an inflationary environment we live in, higher raw material costs, payrolls and future demand or supply of goods etc, there is a missing puzzle that has been put away so often. That missing puzzle is what I want to talk about -  Our cold, hard, cash deposited in the bank. 

Economic taught us that value is created in products, goods or services based on market demand. For example, because the scientist had discovered crude oil can be used in powering car or machines, the explosion of demand had made crude oil the most valuable resource in the world. Otherwise, crude oil is just an element found on earth with no value.  Like shares or stocks in the exchange, share price or value goes up because of high demand from market participants. Same theory, In the current financial models, paper money value derive from its ability to perform transactions. Everyone believes in money, works for money, and demand more money to perform transactions such as buy services, food, car, and condominium etc. This value in money is fully supported/protected by our government in order to create liquidity within the whole financial system and carry out country's agendas.

So, I now want you to know/believe that your money has lost its value for the last 10 years. The loss in money value is not so much associated with Inflationary pressure because inflation had been weak and compensated with the little rise in our wages. So what had happened to our money value? Please see the reasons below:

 

1. Over supply of paper money in the financial system ( The US carry out quantitative easing on monetary policy since 2008)

2. Demand for paper money in financial system had dropped. (Overseas Banks do not want to accept deposits. European, Japanese banks actually have negative interest on savings, they charge customers who deposit money in the bank. Other banks give a very low-interest rate for savings. Banks do not want to carry money asset that could potentially lose more value)

3. Drop in oil price had affected money value.

4. Money flows out of the financial system to seek safe haven in Gold, Crypto currency other hard assets. 

5. Lost confident with governments / Country debts

6. Society going cashless. (New mode of money transactions) 

7. Others

 

Yes, our money had lost its value, many people just do not see this. The high Condominium price was associated with the rise in demand and the drop in the value of money or savings in the bank. So is the raw materials, items, goods or everything else. Things will just get more expensive with the loss in money value.

This had happened 10 years ago,  will this continue? The answer is quite obvious. You good SGD savings in the bank today will probably worth much lower 5 to 10 years down the road. The market interest returns of 3 - 4% per annum is insufficient to compensate the loss in money value. The risk of your money losing value is even higher now as Crypto currency demand is in the rising trend. Technology advancement had proven a point that there is value in associated with Crypto currency concept. Using Blockchain technology, Crypto currency transaction improves the efficiency of fund flows and help in cost savings on individual/corporate or even countries. Crypto currency was deemed as worthless, something created out of thin air. But because it is a decentralized space or medium created to allow transactions to happen, a value was created by the demand and is rising fast.

 

The next things we ask ourselves is will Crypto currency be one day become mainstream currency in a cashless environment? I have no answer for this. What I know for sure is, our money value will continue to drop and Crypto currency or cashless environment is going fasten the pace. Vicious cycle, super rich will get richer because they would have invested in crypto currencies years ahead, the poor only concern is food and shelter, middle-income folks will be the hardest hit.

 

So what is the solution? The answer is capital preservation. You can try few things but I do not know if that is enough.  

1. If you do not own a house, do get one soon.

2. If you do not have hard assets? Go get some golds or silvers to keep

3. If you are getting 4% interest returns per annum, looks further.

4. If you do not have insurance, please go get one.

5. Buy a farm and grow vegetable. Self-reliance.

6. Buy into crypto currencies

7. Buy into a business which is modern and has potential to scale up.

8. Others

In summary, we are living in an era of change. There is a choice given to you, to lead the market or let the market leads you.