What's the best place to put your money to preserve its value?

Ask an Economist
Question: 

What's the best place to put your money if your primary focus is preserving its value? During the recent financial crisis, stocks and bonds went down the tubes. Government debt is approaching unsustainable levels, the Fed is "printing money" (via quantitative easing) like it's going out of style, and it's all fiat money anyway, so keeping cash is looking riskier all the time. Real estate (housing) also lost value during the crisis, is highly illiquid, and has ongoing costs (property taxes). Is gold the answer? Is any place safe in a crisis? Help!

Answer: 

First, a disclaimer. Whatever is written below is not actual investment advice; it is general economics discussion, a dinner table conversation, no more. When it comes to preserving value, it becomes important to figure out, over what length of time. Historically, meaning taking a hundred-year average, the S&P 500 has outperformed US 3-month Treasury bonds by 2-3%. If that continues, then one would say stocks are a good investment in the long run. In the short run, US 3-month Treasury bonds are a relatively safe low-risk-low-return but because they are backed by the economic might of the US government and there are very few countries that are in better economic shape than the US. Typically, in the short run, there is a clear risk-return trade-off and where any investor situates on that risk-return frontier -- whether they invest heavily in gold, say -- depends on her appetite for risk and what she understands to be the short run. Yes, the Fed is printing money but they also have an eye out for signs of inflation.

Tags: