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Published on April 4th, 2013 | by P2P Lending Advice


Three investments that you thought were safe

Traditionally people who fear the volatility of the stock market have kept their savings in cash, gold or bonds, assuming that these would be the safest places for their money. But that is not the case at all.

1)      Cash.  You may feel that this is the safest way to keep money so you know exactly where it is and what it is doing. But you can’t afford to ignore inflation. If you keep capital in this form it will decrease in value each year.  So if inflation is on average 3% a year, you will need to earn that amount elsewhere to keep the value of your capital the same.

2)      Gold. Gold has been priced at a high in recent years. If you compare the recent performance of gold to the stock market then it looks like a safe bet. But the value of gold is cyclical – dependent on ‘booms’ and ‘busts’. If you look at the value of gold in the 1980s there was a boom followed by a hard fall and a depression in its value for 20 years afterwards.

3)      Bonds. Prices are very high at the moment as demand for bonds has increased, probably because they are ‘safe’. As demand increases the price has risen and bond issuers can offer lower payouts. So yield has in fact fallen, sometimes below inflation which means a loss. Money-losing bonds will then be impossible to sell in the future.

In fact, if you look at investment performances over a period of time you will see that the ‘safest’ place for your money is in the global stock market. It is recommended to invest in a broad selection of stocks to minimise your risks.

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