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Thrifty Tips - Cash is king, and gold is better.
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Tuesday, August 25, 2015
Greetings Thrifty Friends,
It has been an interesting week so far. In two days Chinese markets collapsed over 15 percent, wiping out more than $1 trillion in value from equities. The plunge has effected markets around the world. In the U.S. the Dow Jones Industrial Average dropped more than 1000 points.
Things have calmed down a bit. China's central bank cut interest rates, and while that has only slowed their fall, some markets have rallied. European markets actually gained and the value of the U.S. dollar strengthened. All since yesterday.
So what does this mean to you and me?
Unless we are heavily invested in the markets, not much. At least not right away.
Some experts have been screaming gloom and doom. I just read a story about one financial expert who advised people to start hoarding water and canned goods.
We might not be there, it doesn't hurt to start thinking about a few precautions against a worst case scenario.
Keep pinchin' those pennies,
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TODAY'S THRIFTY TIP:
Losing 15, or 25, or 50 percent of the value of your stock portfolio is bad enough, but stocks do re-bound (usually), and most people don't live off of the dividends they make on their 401ks.
But what happens if your bank closes and your ATM doesn't work?
The term 'bank holiday' is a politician's euphemism, but a 'holiday' means you won't be able to access your bank account. It is what the government does when it doesn't want citizens making a run on their banks during a financial crises. It happened in Cyprus during their banking crisis of 2013. And it happened in Greece just this year.
So what to do?
Hoard cash. Okay, maybe not hoard, but Greek banks were closed for three weeks. Do you have enough cash in your pockets to last three weeks? When it costs $50 or $60 just to fill up your gas tank, probably not.
With savings accounts earning one or two percent, or less, you won't be losing much money by keeping a thousand or two in cash where you can get at it.
A bank closure is by no means the worst case scenario. Governments have devalued their currencies before. China just did this, letting the yuan to decline in value by about 4 percent against the US dollar.
That would be like going to bed with $10,000 in a savings account and waking up with $9,600.
And that is mild to some devaluations that have occurred just in recent history.
So what to do?
Invest in gold and silver. I'm not talking about gold and silver futures, but gold and silver. The U.S. mint issues gold and silver bullion 'coins' every year. You can also buy them in coin shops, or you can buy them online from reputable dealers.
I wouldn't suggest liquidating your life savings and buying gold 'eagles', especially since the value of gold and silver fluctuates with the value of the dollar, but a small cache of precious metals is a reassuring when you start to think that the dollar might lose 15 or 20 percent of its value next year.
And it will never, ever be worth zero...expect during a zombie apocalypse, and we don't deal with that in Thrifty Tips.
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