Are You Suffering from Yield Oppression?

There are plenty of smart people who haven’t thought much about the dysfunctional relationship between the interest they earn and monetary policy. (Maybe that’s because of jargon-filled sentences like that…) Bluntly put, they’re not exactly sure how money works. Sure, they have money. And they understand the need to use that money to make money. But they don’t want to lose the wealth they worked so hard to accumulate. So, over time, things like portfolio re-balancing, and changes in strategy due to time of life often result in a cash-heavy investment mix. Cash is King, right? Actually, being heavy in cash-based financial products results in what we call Yield Oppression. Or, the big 0, as in zero. And you probably don’t even know it.

Boomers getting out of the capital markets and Millennials who sneeze at old fogey financial products both feel the unseen pinch. Both are losing money even though they are holding cash assets. Both sides of the cash-heavy chasm need to invest, generate passive income, and move on from the trappings of 0% interest.

That’s right. We said 0%. And that means CDs and savings accounts. Anything that promises an underwhelming return is actually worthless. In fact, these types of vehicles are losing you money. It’s called capital erosion. And the Federal Reserve and global central bank policies to devalue currency under the guise of “economic expansion” are truly costing us all money. That’s the ‘Yield Oppression’ part. It’s not happening by accident.

Non-Fancy Financy how YO works

The players are The FED, ie, the Federal Reserve Bank who is the controller of monetary policy, and SYO, or, Stop Yield Oppression. (That’s us!). The conflict lies in the fact that what the FED says is good for us isn’t actually good for you in creating wealth. There are a few reasons for this discrepancy.

First concept is an easy one: Inflation

At the moment, Central banks publicly state they are targeting 2% inflation annualized. We often ignore inflation unless the inflation rate is high. That’s part of the reason this goes largely unchallenged. In reality a 2% inflation target devalues your purchasing power by 2% per year. If you’re getting interest of less than 2% on a cash investment, you are actually getting less than zero in return.

Next Yield Oppressor: Tactically Devaluing Currency

There are two ways this is happening today.

• Central banks who buy debt issued by their governments devalue currency over time.
• Global central banks devalue currency to maintain competitiveness with global trading partners.

When currency is systemically devalued you can’t keep up and overcome the lower value of the currency by exchanging hours for dollars. You must own cash producing assets that return a higher yield. That’s not a hard concept. But here’s the catch. Low rates benefit those owning assets — and it’s hard to move into an ‘ownership’ position when you’re getting hammered by zero growth.

Last and probably most impactful are two tenets of the FED’s policy.

• Low interest rates for long periods of time stimulates the economy.
• Low interest rates for long periods of time helps drive job creation.

The ‘wisdom’ here is that keeping money cheap allows connected businesses to borrow more money which accelerates growth, then creates jobs, etc. In reality, low rates for extended periods sows the seeds for an unsound economy by creating large wealth gaps and directing capital towards inefficient and speculative use. The only way to narrow the wealth gap is to take control of your economic future.

Stop Yield Oppression, SYO, is out to explain once and for all the mystery of why so many Americans are seeing so little return and STILL feel their financial future is uncertain. SYO will never settle for these unseen but very real zeroes on your net worth growth chart. Nor will we get buried in complicated economic theory the justifies unacceptable returns. Instead, we are looking to find simple, proven ways to make some money.