Generally speaking, each dollar that you save can be deployed toward one of the following assets: cash, commodities/hard assets, bonds/fixed income, real estate, and stocks/business ownership. Below, I discuss the characteristics and historical performance of each asset class and I list my view of the best assets to own in ascending order:
Worst Asset Class: Cash And Cash-Equivalents
Cash is, by definition, designed to erode in value. The Federal Reserve of the United States has a stated target of 2-3% inflation (depending on the year), meaning that every dollar in your pocket will only buy $0.97 or $0.98 worth of goods this time next year as you can purchase right now. Since 1964, the purchasing power of the United States dollar has decreased in value by a factor of 7.7, making cash just about the worst asset to own over the long term. If you put $1,000 into a safety deposit box in 1964, you would only be able to purchase $129 worth of goods today.