How much is lost in having cash?
*Dow Theory Letters, by Richard Russell, March 2, 2012
”Remember all the writing I’ve done promoting the magic of compounding? That’s really what Warren Buffet does. He buys companies that throw off dividends, and then he reinvests the dividends on new dividend-prone companies. Buffet doesn’t care what his company does or makes (insurance, candy, freight hauling) as long as it throws off dividends every year. Buffet knows numbers, and he knows compounding. That is why he’s rich.
The US is now facing compounding in reverse. Our national debt is $15 trillion, plus another $565 trillion that we owe in the future. The debt is compounding at the lowest percentage figure ever, less than one percent on our Treasury bills.
Those people who remain in cash or have their money in short-term government debt are being robbed by inflation or the loss of purchasing power in their money. Buffet knows this, and he realizes that to stand still he has to bring in about 5.5% on his investments.
Buffet knows that if he stays in cash, he’s losing purchasing power.”
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