What is the best way to offset inflation on cash savings?

Question

I'm not talking about with the use of financial institutions or the purchase of real property. What I'm asking is along the lines of something like using the cash to buy mowers and opening a small lawn service. Something of that nature.

Answer 1

In order for the spending power of your cash not to be eroded by inflation, you could do one of the following:

Purchases "hard" assets that will appreciate at a rate greater than or equal to inflation (perhaps collectibles, precious metals, real estate).

Invest the cash in financial assets that will appreciate at a rate greater than or equal to inflation (CDs, stocks, bonds, etc.).

Purchase at today's prices goods and services that you would purchase in the future at a higher price. That could mean simply bargain hunting and stocking up when the price is right (i.e. Jif is half price so buy a year's supply).

Your example is not such a good example of beating inflation because most of your income is not because of the cash spent on the mower(s) but rather based on your hours of labor and variable costs such as gas, transportation, advertising, etc.

Answer 2

The best way to offset inflation is to invest your money in anything that will outpace inflation. However, with risk comes return. Luckily, you can get returns that beat inflation with little risk. Tax free municipal bonds for example will usually yield around 4% and are virtually risk free. Therefore if your only goal is to outpace inflation, something like this is a good option. That being said, if we are talking about long term investing, you should aim to return MUCH better than inflation. I would suggest that you invest mainly in good growth stock mutual funds. They aren't nearly as risky as hand picking single stocks but give you stock market returns as opposed to the low fixed income returns. The stock market has averaged over 12% through the last 80 or so years. Picking a series of mutual funds with good track records will offer the best risk to return ratio out there. Much less risky than starting a small business. However, if that is the direction you want to go, more power to you. You just have to make sure that you are doing things for the right reasons.

Hope this helps!

Answer 3

By opening a small business you have the possibility of getting a good return on your investment if you are willing to work hard and smart. This is a way to add value to your savings. But you must be willing to work and maintain your equipment.