In the first article, The Problem with Money Today, we looked at how government debt, deficits, and inflation shrink the value of your money. If you hold cash, you are guaranteed to lose purchasing power. The question now is simple: what can you do about it?
The answer is that you must invest. Not someday when life feels easier or when you “have extra money.” You must invest now if you want to keep from falling behind.
The Biggest Mistake People Make
Most people think they will start investing once they have money left over after bills and fun. That day never comes. If you wait for leftovers, you will look up ten years from now and realize you have lost an entire decade of growth.
Investing has to come first. Even small amounts matter. Twenty, fifty, or one hundred dollars a week compounds over time into real money. It is not about being rich today, it is about making sure you are not poor tomorrow.
Why Cash is the Worst “Investment”
A 4-5% annual return used to be enough to grow wealth. It is not anymore.
Inflation has been running above 3% a year on average, and the dollar has lost about 25% of its value in just five years. That means if you are earning a 4% “safe” return, you are not really growing. You are treading water, or worse, sinking.
Even some of the traditional “safe” investments, like bond funds or savings accounts, cannot keep up with the pace of debasement. They may look like they are growing on paper, but in reality they are losing against inflation.
Rethinking Diversification
Most people do not own individual businesses. They own mutual funds or retirement accounts filled with hundreds of companies they cannot even name. They are told this makes them diversified and therefore less risky. In reality, it means they are ignorant of what they actually own. To me, that is more risky.
The S&P 500 index is a great example. The S&P 500 index represents the stock performance of 500 leading U.S. companies. An S&P 500 ETF is a solid choice if you want to be a lazy investor. At least you know you are invested in America’s largest businesses. But here is the truth. The S&P 500 only outperforms inflation about 75 % of the time. In about 25 % of years, it fails to keep pace with rising prices (Quantified Strategies). Most of the real returns come from a small handful of the largest companies. That may look diversified on the surface, but in practice your results depend heavily on just a few.
The real danger is believing that diversification automatically protects you. Warren Buffett has said for years that diversification makes sense if you do not know what you are doing. His success was built on conviction, not owning everything. He spent the time to understand a business deeply before investing, which gave him the confidence to concentrate rather than spread thin.
True investing is not about owning hundreds of companies. It is about knowing what you own and why.
And let us be honest. Even the so-called “low risk” parts of diversified portfolios, like bonds, have underperformed badly. In 2022, the Bloomberg U.S. Aggregate Bond Index lost about 15%, its worst year on record. For something sold as low risk, that kind of loss is a wake-up call. Owning assets you do not understand, or assuming they are safe just because they are common, can be far riskier than a concentrated portfolio you actually know.
The Retirement Wake-Up Call
Ask yourself: what do you plan to do when you retire?
If your answer is “let my 401k target-date fund handle it,” you are staying blind to the real world of investments and opportunities. Those funds are designed to keep you from starving, not to help you beat debasement or grow wealth.
Retirement is not automatic. It requires intention and education. If you outsource your future to a default option, you will likely end up working longer than you planned.
The Path Forward
You do not invest to gamble. You invest to protect the value of your work. Every paycheck you earn is being quietly eroded by debt and inflation. Investing is the only way to outrun that erosion.
Start with what you can, even if it feels small. Learn enough to have conviction. Be intentional instead of passive.
The choice is simple. You can watch your hard work slip away each year, or you can invest and take control of your future.
Investing 101 for the Clueless but Curious
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How to Outrun Debasement (This Article)
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Understanding the Basics of Money
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The Power of Compounding
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Stock Market 101
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Bonds, ETFs, and Index Funds
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The Case for Alternative Assets
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How to Research a Stock
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Conviction Investing vs Diversification
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Building Your First Portfolio
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The Future of Investing
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