Friday, May 29, 2009

Breakeven on investing activities

On the inflation front, the GDP price index was revised to an annualized 2.8 percent increase in the latest GDP report issued today by the Commerce department.

Factoring these new estimates the following are the Minimum Rates of Return required to Breakeven after Tax and Inflation

In the 35% Tax Bracket -- 3.915%
In the 25% Tax Bracket -- 3.625%
In the 15% Tax Bracket -- 3.335%

This means that if you have money invested and are earning less than 3.3% on it at present, you will be losing purchasing power and will be worse off in the near future.

Translation: you are not earning enough on your money to buy the same amount of goods and services (the things you use to live on)a year from now than it costs you today for those same items.

This is, of course, a moving target. The current economic climate in the USA (and worldwide) will be getting worse from your point of view. The things you need to buy, like gasoline and food, will become more expensive at the same time that governments worldwide will be trying as hard as they can to keep rates of return down as low as they can.

What to do: find someone who can show you where you can earn more than 5% on your money. It can be done. But not by investing with the Government. The Government investments are among the most risky to your purchasing power that you can make now.

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