Don't Dismiss Dividends
Cash instruments essentially have a zero, if not negative, real rate of return. And while it may seem that the Fed's zero rate policy is creating a deflationary environment, inflation is occurring where it matters most. Food costs are significantly higher than they were five years ago. At a minimum, cash instruments will continue to deliver negative real returns for the next 12 to 18 months.
As for bonds, the risk is even greater. The idea that risk can be mitigated by owning a fixed-income instrument that locks your rate of return for three, five or 10 years at a maximum return of 1.5% on the 10-year bond simply seems dangerous. Odds are incredibly high that the purchasing power of the U.S. dollar will decline over the next 10 years, so laying out $1,000 today will be worth a lot less in real terms five or 10 years from now. And that's before accounting for the added risk of higher interest rates (which causes bond prices to drop)....243 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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