A WEAK currency, despite its appeal to exporters and politicians, is no free lunch. But it can provide a cheap one. In China a McDonald’s Big Mac costs just 14.5 yuan on average in Beijing and Shenzhen, the equivalent of $2.18 at market exchange rates. In America the same burger averages $3.71. That makes China’s yuan one of the most undervalued currencies in our Big Mac index, which is based on the idea of purchasing-power parity. This says that a currency’s price should reflect the amount of goods and services it can buy. Since 14.5 yuan can buy as much burger as $3.71, a yuan should be worth $0.26 on the foreign-exchange market...."
Understanding the difference in your investment goal between preserving principal and preserving buying power
Recently I asked several investment brokers and investment fund managers about my concerns with the safety of the principal of my mothers portfolio. She has some major corp. stocks, mutual funds and various municipal, state and federal tax exempt bonds. I noticed that she had over 50% of the total in stocks or stock mutual funds. this seems a bit high to me where she is 99 years old. Their response was unexpected: "..oh, she will be fine. When the dollar tanks, the stock market will go up.."
I said, " No, you don't understand. Today, let's say I buy a hamburger for $ 1.00. If we get hyper-inflation, and I go back to buy the same hamburger in five years, I will be paying a lot more like $ 3.00. So the point is, my goal goes beyond preserving her PRINCIPAL!"
The bonds will do that. My goal is to preserve her PURCHASING POWER!!! This is where precious metals, gold , silver and agricultural products come in. They are expected to rises even as the dollar and the economy tanks. Supply and demand takes effect. So if she / we have some portion of our investments (5 to 20% guess-timate) in gold / silver and agricultural resources, then our purchasing power of our hard-earned income and retirement will be protected.
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