Due to the volatility in the stock market, the lower interest rate environment, and the falling home values in many parts of the United States, some people might be tempted to stuff whatever liquid money they have into their mattress.
But, hey, a mattress can catch fire, so it’s not the most attractive parking place. Besides, money stashed at home doesn’t grow. Indeed, when today’s falling dollar is factored into the equation, mattress money will actually lose value over time.
So, where are consumers actually thinking of putting their money for safekeeping?
A lot of people today seem to be talking about exactly that. Here are some examples:
One man told me he is thinking of taking money from his bank account to buy stock in a bank that’s lost value due to the subprime crisis. “Might go up,” he said, bypassing the downside risk.
Another person is thinking of going the other direction–pulling money from stocks and putting it into bank certificates of deposit paying 2%. “At least it’s guaranteed,” she said, pooh-poohing the trading and opportunity costs on the stock side and the erosive effect of inflation and taxes on the CD side.
Yet another is considering using available cash plus a mortgage to buy foreclosed homes. “Houses are cheap right now,” he said, ignoring whether he can even get a mortgage and/or a profit.
These and other proposed solutions do not seem well thought out. My take is that many people talk this way just to get feedback. Their not-so-hidden-message is, “I’m afraid of this economy, but don’t know what to do. What do you think?”
I’m no advisor so I always urge them to talk things over with their agent, advisor or rep.
Still, I leave these conversations feeling more than a little unnerved. Many of these people have families, educations, jobs, homes and other assets. Yet where financial security is concerned, they’re a quart short.
Further, they never, but never, broach the idea of moving some money into insurance products that have guarantees. Why is that?