Time is Money

Now let’s explain why and how. The time value of money concept is relatively new and originates in the 19th century. Before then the primary means of exchange was gold. The price of gold was relatively fixed and only changed in value when more was discovered, or if Pirates raided a ship and removed from the gold from circulation; a better example would be a ship sinking, but you get the idea.

The issue with gold is that it is heavy; and other metals can be used to debase it. This happened in the Roman Empire where the primary coins were silver, but over time the amount of silver in a denarius went from 99.9% to 50%. Naturally, inflation followed as merchants began demanding more denarii for for their time and products.

Fast forward in time where governments do not have the time or central authority to debase currency; the Templar Knights established uniform banking. Their network allowed you to deposit gold and silver and receive a travelers cheque in exchange. You could then take this cheque to the Holy Land and exchange it for precious metals at a Templar post in the Holy Land.

Fast forward again to 1913 and a central bank in the United States is established. At this time you could bring your dollars to a bank and demand gold or silver in return. Fast forward a few more years; private ownership of precious metals is outlawed under FDR. Fast forward some more and the dollar is no longer backed by precious metals under Nixon.

So what does this mean for you with respect to the time value of money? Since precious metals were generally fixed; there was no incentive to spend; only save. Now; what $1 buys you today; will not buy you tomorrow. Look at the price of A Coca Cola 1888; it was $.05. Today, roughly the same amount costs $1.20. But the melt value of a silver dime from the early 1900s nets you about $1.50; so the value of a bottle of Coca Cola priced in silver is relatively unchanged, but is drastically different when priced in dollars.

This is why saving money in a bank is a cycle of diminishing results. The dollars in your account are being perpetually devalued by the federal reserve. That is why I invest in companies that have a strong history of raising dividends beyond the rate of inflation.

Inflation is the enemy of everyone. You need to start seeking out sources of income that can keep pace with inflation. I personally look to dividends from stocks. Many companies (with wide moats) have pricing power that can command increased prices in the face of increasing supply costs. These companies often reward shareholders with dividends that will often outpace inflationary upticks.

Real estate is excellent at keeping pace with inflation. Unfortunately, for buy and hold types of real estate; the money is made on the cash flow, not on the capital disposition. Unless there is a bubble; Real Estate tends to merely keep pace with inflation; not necessarily exceed it; or as I stated previously; unless there is a bubble.

I want to stress that the inflationary impacts across the global economies will impact every product differently and for different reasons. Colleges and Medical fields have seen a massive surge in pricing since the 1970s due to artificial demand created by government regulations. This type of inflation is unpredictable as the legislation often passes without warning, but once it does; you can always find some creative way to profit off of government regulations. Every circumstance is different so think long and hard before you make any moves.

So, in summary, with inflation chasing you from every angle; you need to be mindful of it. Always consider how your investments will perform in the best of markets to combat inflation and in the worst of markets to retain as much principle as possible. Now, you could invest in precious metals, but this carries some heavy risks that the average investor can not mentally handle; so stick with things that you know before you move into more complex areas in the investing world. But whatever you do; make sure you have a firm understanding of what you are doing. Always understand the risk, the potential reward, and the amount of time you plan to hold the investment.

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