Saturday, December 26, 2009

Doubling Your Money while Earning 0.01 Percent

by Bill McBride on 12/26/2009 07:49:00 AM

Something every saver knows ...

From Stephanie Strom at the NY Times: At Tiny Rates, Saving Money Costs Investors

The elderly and others on fixed incomes have been especially hard hit. Many have seen returns on savings, C.D.’s and government bonds drop to niggling amounts recently ...

" ... what’s going to happen now as C.D.’s mature is that retirees and the elderly are going to take anywhere from a half to three-quarters ... cut in their incomes,” said Joe Parks, a retired accountant in Houston ...

“What the average citizen doesn’t explicitly understand is that a significant part of the government’s plan to repair the financial system and the economy is to pay savers nothing and allow damaged financial institutions to earn a nice, guaranteed spread,” said [Bill Gross of PIMCO] ... Mr. Gross said he read his monthly portfolio statement twice because he could not believe that the line “Yield on cash” was 0.01 percent. At that rate, he said, it would take him 6,932 years to double his money.
That is what my statement says too - not exactly the best return. But in less than 7,000 years the money will double!