BERKO: Advice for wise savers
• Email: malber@adelphia.net
• Address: PO Box 1416, Boca Raton, FL 33429
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Dear Mr. Berko:
We have a lot of cash coming due from a mortgage ($104,000) that is paying off early. The mortgage was left to us by my dad’s estate and was paying us 5 percent, which we saved. We know that we can’t get that interest on U.S. government bonds, but we would like to get at least 2 percent (which is what 10-year U.S. government bonds pay) and keep this money safe, especially to protect it from inflation for 10 years, which is when our children will be ready to go to college.
We are really concerned about the value of the dollar in the coming decade because of the trillions of dollars of debt our country keeps piling up. Our parents, who all passed early last year, drummed this into our heads. They knew from experience how terrible it is to save money for 10 years and then have to spend $75 or more to buy something that $50 would have bought when you first put the money in savings. So I figure that if this $104,000 will buy the same amount of things in 10 years as it would today, we will be very pleased and ahead of the game. So what would you recommend we do with this money?
My wife and I have good county jobs with a good retirement plan. We don’t put charges on credit cards unless we already have the money to pay the bill. Our parents drummed that into us, too.
D.S., Chicago
Dear D.S.:
Did you know that if most Americans managed their finances as you two do, our economy would be in great shape? For a couple of average working Americans, as you claim to be, both of you (thanks to your parents’ parenting) have an above average understanding of economics. I hope you pass this knowledge and wisdom on to your children.
But you are as right as a tall root beer float with double scoops of vanilla ice cream. Congress and the administration, believing America is basically a population of stupids, tell us that inflation is less than 2.5 percent. Fortunately, you know better. I can only give you five recommendations:
1. Consider prepaying the fees for your children’s college expenses so that you lock in the costs today. If your kids go to college, don’t let them take those soapy, wishy-washy liberal arts courses, because they may never find an employer willing and dumb enough to hire them at a living wage.
2. Purchase SPDR Gold Trust (GLD-$159.54), an exchange-traded fund that owns $71.2 billion in gold bullion. GLD doesn’t pay dividends, but its market price reflects the daily change in the value of the metal. Unlike real estate, gold is supposed to be a nearly perfect hedge against inflation. That could change, but since going public in 2004, GLD’s market value has nearly tripled.
3. Consider the 10-year Norwegian government bonds yielding 2.5 percent and rated AAA, compared with 1.9 percent for U.S. Treasuries rated AA. Norway’s assets exceed its liabilities by about $1 trillion, or 175 percent of the country’s gross domestic product. Energy-independent Norway, sitting on its North Sea oil reserves, expects a $60 billion budget surplus in 2012 versus a projected $1.3 trillion deficit for the United States. There is, of course, a risk that foreign exchange rates could reduce your return. But I think the Norwegian currency will appreciate against the U.S. dollar in the coming decade.
4. Consider prepaying some of your children’s college costs, investing some money in GLD and buying some Norwegian government bonds.
5. Finally, in my opinion, most American college degrees aren’t worth a tuppence. Tell your kids to enlist in the armed services when they finish high school. This will put employable experience under their belts and allow them to save some money, and when their hitch is up, Uncle Sam will pay their college tuition.
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