How can a 'saver' maintain or increase wealth in low interest rate economy?
"Since the other answers have covered mutual funds/ETFs/stocks/combination, some other alternatives I like - though like everything else, they involve risk: Example of how these other ""saving methods"" can be quite effective: about ten years ago, I bought a 25lb bag of quinoa at $19 a bag.  At the same company, quinoa is now over $132 for a 25lb bag (590%+ increase vs. the S&P 500s 73%+ increase over the same time period).  Who knows what it will cost in ten years.  Either way, working directly with the farmers, or planting it myself, may become even cheaper in the future, plus learning how to keep and store the seeds for the next season." Personally, I invest in mutual funds.  Quite a bit in index funds, some in capital growth & international. "I think this is a good question with no single right answer.  For a conservative investor, possible responses to low rates would be: Probably the best response is somewhere in the middle: consider riskier investments for a part of your portfolio, but still hold on to some cash, and in any case do not expect great results in a bad economy. For a more detailed analysis, let's consider the three main asset classes of cash, bonds, and stocks, and how they might preform in a low-interest-rate environment. (By ""stocks"" I really mean mutual funds that invest in a diversified mixture of stocks, rather than individual stocks, which would be even riskier.  You can use mutual funds for bonds too, although diversification is not important for government bonds.) Cash. Advantages: Safe in the short term.  Available on short notice for emergencies. Disadvantages: Low returns, and possibly inflation (although you retain the flexibility to move to other investments if inflation increases.) Bonds. Advantages: Somewhat higher returns than cash.  Disadvantages: Returns are still rather low, and more vulnerable to inflation.  Also the market price will drop temporarily if rates rise. Stocks. Advantages: Better at preserving your purchasing power against inflation in the long term (20 years or more, say.)  Returns are likely to be higher than stocks or bonds on average.  Disadvantages:  Price can fluctuate a lot in the short-to-medium term.  Also, expected returns are still less than they would be in better economic times. Although the low rates may change the question a little, the most important thing for an investor is still to be familiar with these basic asset classes.  Note that the best risk-adjusted reward might be attained by some mixture of the three."
More money doesn't make people richer in the sense that if the govt gave every citizen a $1 they would all still have the same amount of wealth and purchasing power, but their nominal value in dollar terms would be $1 higher. Money is just the denominator in exchange, so lets say a bicycle is $100 and a scooter is $200, you know that 2 bikes equals 1 scooter. So printing $100 for people to each buy a bicycle will just make the price of bikes go up, and they'll end up costing much more than $100, so no real wealth has been created.   The main problem that I think you're trying to identify i that we've had an over-expansion of credit by central banks around the world. The scarcity of credit is a good thing because it forces only the best, most productive ideas to be allowed to be undertaken. If a bank only has $10 to loan, and business man A can use that to have a return of 50%, business man B can have 25%, and business man C can have 5%, then the obvious choice is to give the loan to business man A because he is using the resources most productively, and depending on the details of his business model, is the least risky person to loan to (ie the bank is most assured he will be able to pay his money back). But with central banks controlling interest rates, and reserve requirements for banks, the banks can lever themselves up and lend out much more money than they've taken in. After all if a bank can finance its reserves with low interest rates, but make additional money from increased lending, then they are incentivised to seek higher profits. Especially with the FDIC insuring everyone's bank deposits. So now businessmen A, B and C all get their loans and are able to start their businesses, but they're all in the same line of work and need to utilize the same resources. So now instead of just businessman A buying materials he has two other buyers looking to utilize a scarce amount of resources. The price of those resources is now higher since supply is limited but demand has tripled. So now businessman A can only make 40% through his business, B can make 5% and businessman C loses money in his venture. A and B pay their loan back but C is unable to. Ignoring interest, for the sake of simplicity, the bank has essentially broken even. Before leveraging up they loaned out $10 and got back $10. After leveraging they loaned out $30 and got back 20. So the problem you're seeing is excessive credit permitting ventures to be undertaken that should not have been allowed to be. The problem is interest rates that are not set by the market, but by a centralized bureau who couldn't possibly have enough information to determine what the cost of financing should be. "The classic definition of inflation is ""too much money chasing too few goods."" Low rates and QE were intended to help revive a stalled economy, but unfortunately, demand has not risen, but rather, the velocity of money has dropped like a rock.  At some point, we will see the economy recover and the excess money in the system will need to be removed to avoid the inflation you suggest may occur. Of course, as rates rise to a more normal level, the price of all debt will adjust.  This question may not be on topic for this board, but if we avoid politics, and keep it close to PF, it might remain." The safest investment in the United States is Treasures. The Federal Reserve just increased the short term rate for the first time in about seven years. But the banks are under no obligation to increase the rate they pay. So you (or rather they) can loan money directly to the United States Government by buying Bills, Notes, or Bonds. To do this you set up an account with Treasury Direct. You print off a form (available at the website) and take the filled out form to the bank. At the bank their identity and citizenship will be verified and the bank will complete the form. The form is then mailed into Treasury Direct.  There are at least two investments you can make at Treasury Direct that guarantee a rate of return better than the inflation rate. They are I-series bonds and Treasury Inflation Protected Securities (TIPS). Personally, I prefer the I-series bonds to TIPS.  Here is a link to the Treasury Direct website for information on I-series bonds. this link takes you to information on TIPS.  Edit: To the best of my understanding, the Federal Reserve has no ability to set the rate for notes and bonds. It is my understanding that they can only directly control the overnight rate. Which is the rate the banks get for parking their money with the Fed overnight. I believe that the rates for longer term instruments are set by the market and are not mandated by the Fed (or anyone else in government). It is only by indirect influence that the Fed tries to change long term rates. "Other people have already demonstrated the effect of compound interest to the question. I'd like to add a totally different perspective.  Note that the article says if you can follow this simple recipe throughout your working career, you will almost certainly beat out most professional investors [...] you'll likely accumulate enough savings to retire comfortably. (the latter point may be the more practical mark than the somewhat arbitrary million (rupees? dollars?) My point here is that the group of people who do put away a substantial fraction of their (lower) early wages and keep them invested for decades show (at least) two traits that will make a very substantial difference to the average (western) person. They may be correlated, though: people who are not tempted or able to resist the temptation to spend (almost) their whole income may be more likely to not touch their savings or investments. (In my country, people like to see themselves as ""world champions in savings"", but if you talk to people you find that many people talk about saving for the next holidays [as opposed to saving for retirement].) Also, if you get going this way long before you are able to retire you reach a relative level of independence that can give you a much better position in wage negotiations as you do not need to take the first badly paid job that comes along in order to survive but can afford to wait and look and negotiate for a better job.  Psychologically, it also seems to be easier to consistently keep the increase in your spending below the increase of your income than to reduce spending once you overspent. There are studies around that find homeowners on average substantially more wealthy than people who keep living in rental appartments (I'm mostly talking Germany, were renting is normal and does not imply poverty - but similar findings have also been described for the US) even though someone who'd take the additional money the homeowner put into their home over the rent and invested in other ways would have yielded more value than the home. The difference is largely attributed to the fact that buying and downpaying a home enforces low spending and saving, and it is found that after some decades of downpayment homeowners often go on to spend less than their socio-economic peers who rent. The group that is described in this question is one that does not even need the mental help of enforcing the savings. In addition, if this is not about the fixed million but about reaching a level of wealth that allows you to retire: people who have practised moderate spending habits as adults for decades are typically also much better able to get along with less in retirement than others who did went with a high consumption lifestyle instead (e.g. the homeowners again).  My estimate is that these effects compound in a way that is much more important than the ""usual"" compounding effect of interest - and even more if you look at interest vs. inflation, i.e. the buying power of your investment for everyday life.  Note that they also cause the group in question to be more resilient in case of a market crash than the average person with about no savings (note that market crashes lead to increased risk of job loss).  Slightly off topic: I do not know enough how difficult saving 50 USD out of 50 USD in Pakistan is - and thus cannot comment whether the savings effort called for in the paper is equivalent/higher/lower than what you achieve. I find that trying to keep to student life (i.e. spending that is within the means of a student) for the first professional years can help kick-starting a nest egg (European experience - again, not sure whether applicable in Pakistan)." This question is likely to be voted closed as opinion-based. That said - In general people have become accustomed to instant gratification. They also have the media showing them luxury and are enticed every day to buy things they don't need.  In the US, the savings rate is awfully low, but it's not just the lower 50%, it's 75% of people who aren't saving what they should.  see http://web.stanford.edu/group/scspi/_media/working_papers/pfeffer-danziger-schoeni_wealth-levels.pdf for an interesting article on the topic of accumulated wealth. Increasing rates from .75% to 1% is an attempt to control debt.  The new 1% rate drives down demand for bonds based on the old .75% rate and drives down demand for stocks who have decrease profit because they pay more interest on debt.  This is the federal reserves primary tool controling inflation.   1% is what the banks pay to borrow money, they base their lending rates on this 1% figure.  If a person can guarantee a .75% return on money borrowed at 1%, they will opt to save and instead lend their money out at 1%. Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%.  CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate. "Their high savings isn't why they have to export capital, the issue is that domestic depositors don't have access to the sky-high interest rates over the last 2 decades in China. There is definitely correlation between asset levels and debt.  I miss-typed in my previous post. I meant to say that the amount of debt is overstated, precicesly because wealth is high relative to income due to the high savings rate.  Ultimately, there isn't a good answer yet to your question. The seminal work (which has received many updates in the last 6 years) that first attempted to understand the disconnect between the ultra-high interest rate in China and the high levels of capital exports is called ""Growing Like China,"" by Song, Storesletten, and Zilibotti published in the American Economic Review in 2011.  Global debt according to the IIF is 327% of GDP. So China is actually a little below average in terms of total debt to GDP. And when you're growing at 5%+ a year, it is okay to lever up a little bit.   On top of all of this, the Chinese government is well aware of these issues and will almost certainly make some comments October 18th and over the next week about constraining debt growth.  This is all complicating the issue though, when you have a huge supply of money to lend, interest rates fall and companies take on more debt. So in general you would expect savings and debt levels to move together." "Pay off the credit cards.  From now on, pay off the credit cards monthly.  Under no circumstances should you borrow money.  You have net worth but no external income.  Borrowing is useless to you.   $200,000 in two bank accounts, because if one bank collapses, you want to have a spare while you wait for the government to pay off the guarantee.  Keep $50,000 in checking and another $50k in savings.  The remainder put into CDs.  Don't expect interest income beyond inflation.  Real interest rates (after inflation) are often slightly negative.   People ask why you might keep money in the bank rather than stocks/bonds.  The problem is that stocks/bonds don't always maintain their value, much less go up.  The bank money won't gain, but it won't suddenly lose half its value either.  It can easily take five years after a stock market crash for the market to recover.  You don't want to be withdrawing from losses.   Some people have suggested more bonds and fewer stocks.  But putting some of the money in the bank is better than bonds.  Bonds sometimes lose money, like stocks.  Instead, park some of the money in the bank and pick a more aggressive stock/bond mixture.  That way you're never desperate for money, and you can survive market dips.  And the stock/bond part of the investment will return more at 70/30 than 60/40.   $700,000 in stock mutual funds.  $300,000 in bond mutual funds.  Look for broad indexes rather than high returns.  You need this to grow by the inflation rate just to keep even.  That's $20,000 to $30,000 a year.  Keep the balance between 70/30 and 75/25.  You can move half the excess beyond inflation to your bank accounts.  That's the money you have to spend each year.  Don't withdraw money if you aren't keeping up with inflation.   Don't try to time the market.  Much better informed people with better resources will be trying to do that and failing.  Play the odds instead.  Keep to a consistent strategy and let the market come back to you.  If you chase it, you are likely to lose money.   If you don't spend money this year, you can save it for next year.  Anything beyond $200,000 in the bank accounts is available for spending.  In an emergency you may have to draw down the $200,000.  Be careful.  It's not as big a cushion as it seems, because you don't have an external income to replace it.   I live in southern California but would like to move overseas after establishing stable investments.   I am not the type of person that would invest in McDonald's, but would consider other less evil franchises (maybe?).   These are contradictory goals, as stated.  A franchise (meaning a local business of a national brand) is not a ""stable investment"".  A franchise is something that you actively manage.  At minimum, you have to hire someone to run the franchise.  And as a general rule, they aren't as turnkey as they promise.   How do you pick a good manager?  How will you tell if they know how the business works?  Particularly if you don't know.  How will you tell that they are honest and won't just embezzle your money?  Or more honestly, give you too much of the business revenues such that the business is not sustainable?  Or spend so much on the business that you can't recover it as revenue?   Some have suggested that you meant brand or stock rather than franchise.  If so, you can ignore the last few paragraphs.  I would be careful about making moral judgments about companies.  McDonald's pays its workers too little.  Google invades privacy.  Exxon is bad for the environment.  Chase collects fees from people desperate for money.  Tesla relies on government subsidies.  Every successful company has some way in which it can be considered ""evil"".  And unsuccessful companies are evil in that they go out of business, leaving workers, customers, and investors (i.e. you!) in the lurch.   Regardless, you should invest in broad index funds rather than individual stocks.  If college is out of the question, then so should be stock investing.  It's at least as much work and needs to be maintained.   In terms of living overseas, dip your toe in first.  Rent a small place for a few months.  Find out how much it costs to live there.  Remember to leave money for bigger expenses.  You should be able to live on $20,000 or $25,000 a year now.  Then you can plan on spending $35,000 a year to do it for real (including odd expenses that don't happen every month).  Make sure that you have health insurance arranged.   Eventually you may buy a place.  If you can find one that you can afford for something like $100,000.  Note that $100,000 would be low in California but sufficient even in many places in the US.  Think rural, like the South or Midwest.  And of course that would be more money in many countries in South America, Africa, or southern Asia.  Even southern and eastern Europe might be possible.  You might even pay a bit more and rent part of the property.  In the US, this would be a duplex or a bed and breakfast.  They may use different terms elsewhere.   Given your health, do you need a maid/cook?  That would lean towards something like a bed and breakfast, where the same person can clean for both you and the guests.  Same with cooking, although that might be a second person (or more).  Hire a bookkeeper/accountant first, as you'll want help evaluating potential purchases.  Keep the business small enough that you can actively monitor it.   Part of the problem here is that a million dollars sounds like a lot of money but isn't.  You aren't rich.  This is about bare minimum for surviving with a middle class lifestyle in the United States and other first world countries.  You can't live like a tourist.   It's true that many places overseas are cheaper.  But many aren't (including much of Europe, Japan, Australia, New Zealand, etc.).  And the ones that aren't may surprise you.  And you also may find that some of the things that you personally want or need to buy are expensive elsewhere.  Dabble first and commit slowly; be sure first.  Include rarer things like travel in your expenses.   Long term, there will be currency rate worries overseas.  If you move permanently, you should certainly move your bank accounts there relatively soon (perhaps keep part of one in the US for emergencies that may bring you back).  And move your investments as well.  Your return may actually improve, although some of that is likely to be eaten up by inflation.  A 10% return in a country with 12% inflation is a negative real return.   Try to balance your investments by where your money gets spent.  If you are eating imported food, put some of the investment in the place from which you are importing.  That way, if exchange rates push your food costs up, they will likely increase your investments at the same time.  If you are buying stuff online from US vendors and having it shipped to you, keep some of your investments in the US for the same reason.  Make currency fluctuations work with you rather than against you.   I don't know what your circumstances are in terms of health.  If you can work, you probably should.  Given twenty years, your million could grow to enough to live off securely.  As is, you would be in trouble with another stock market crash.  You'd have to live off the bank account money while you waited for your stocks and bonds to recover." "Note: I am making a USA-assumption here; keep in mind this answer doesn't necessarily apply to all countries (or even states in the USA).  You asked two questions: I'm looking to buy a property. I do not want to take a risk on this   property. Its sole purpose is to provide me with a place to live. How   would I go about hedging against increasing interest rates, to counter   the increasing mortgage costs? To counter increasing interest rates, obtaining a fixed interest rate on a mortgage is the answer, if that's available.  As far as costs for a mortgage, that depends, as mortgages are tied to the value of the property/home.  If you want a place to live, a piece of property, and want to hedge against possible rising interest rates, a fixed mortgage would work for these goals. Ideally I'd like to not lose money on my property, seeing as I will be   borrowing 95% of the property's value. So, I'd like to hedge against   interest rates and falling property prices in order to have a risk   neutral position on my property. Now we have a different issue.  For instance, if someone had opened a fixed mortgage on a home for $500,000, and the housing value plummeted 50% (or more), the person may still have a fixed interest rate protecting the person from higher rates, but that doesn't protect the property value.  In addition to that, if the person needed to move for a job, that person would face a difficult choice: move and sell at a loss, or move and rent and face some complications. Renting is generally a good idea for people who (1) have not determined if they'll be in an area for more than 5-10 years, (2) want the flexibility to move if their living costs rises (which may be an issue if they lose wages), (3) don't want to pay property taxes (varies by state), homeowner's insurance, or maintenance costs, (4) enjoy regular negotiation (something which renters can do before re-signing a lease or looking for a new place to live).  Again, other conditions can apply to people who favor renting, such as someone might enjoy living in one room out of a house rather than a full apartment or a person who likes a ""change of scenes"" and moves from one apartment to another for a fresh perspective, but these are smaller exceptions. But with renting, you have nothing to re-sell and no financial asset so far as a property is concerned (thus why some real estate agents refer to it as ""throwing away money"" which isn't necessarily true, but one should be aware that the money they invest in renting doesn't go into an asset that can be re-sold)." Firstly, make sure annual income exceeds annual expenses. The difference is what you have available for saving.  Secondly, you should have tiers of savings. From most to least liquid (and least to most rewarding): The core of personal finance is managing the flow of money between these tiers to balance maximizing return on savings with budget constraints. For example, insurance effectively allows society to move money from savings to stocks and bonds. And a savings account lets the bank loan out a bit of your money to people buying assets like homes.  Note that the above set of accounts is just a template from which you should customize. You might want to add in an FSA or HSA, extra loan payments, or taxable brokerage accounts, depending on your cash flow, debt, and tax situation. I think three things are happening right now:  1) The stock market is one of the only sensible places to get a return on your money. Bond rates are very low and real estate is a little trickier.   2) There are fewer publicly traded companies now than there have been in the past. It's easier to invest in public companies than private companies, so more money is going into fewer companies, inflating the prices.  3) Wealth inequality is higher now than it has been in decades. If you give poor people more money, they just spend it to lead more comfortable lives. They won't invest in the stock market. If you give a rich person more money, they just invest more of it, since they are already spending as much as they reasonably can. In this economy, for the past few decades, we've been giving the rich more and more money.  So, with these 3 factors, more money is pouring into the fewer companies of the stock market, inflating their prices.   (At least, this is the idea put forward by a Fidelity analyst I heard a talk from recently, and it makes sense to me). "When you say that the problem is ""high supply but no demand"" you are actually correct. Here's why:  The phrase ""borrow/spend less, save more"" isn't an absolute law. It's more of a cautionary tale. Obviously, spending is an integral part of an economy: it accounts for at least 50% of every transaction! But the aphorism is getting at something other than admonishing people to not spend. The point of the saying is that interest rates should reflect savings rates.   What it comes down to is the how the law of supply and demand applies to the relationship between savings and interest rates. Consider this thought experiment: in a world where everybody saves 50% of their income, what would happen to interest rates? Banks would have a glut of savings, relative to the population. Assuming demand remains constant, interest rates would go down: the price of borrowing goes down as the supply of money to be borrowed increases. Thus a corollary of the law of supply and demand is that as savings increase, interest rates tend to go down.   So, as savings increase, the economic environment encourages capital improvements. Businesses can borrow at lower rates and increase long-term productive capacity. This is what the federal reserve has attempted to do by lowering the Fed Funds rate to near zero and by Operation Twist: increase economic activity through low borrowing costs.   So, what's the problem? When interest rates are artificially low there are no savings to support the production later in time. A company that borrows at a 1% rate created by the feds can build a factory to make widgets, but it will have a hard time selling that widget to a population with a negative net worth. However, if the 1% rate is ""natural"", then the company should be fine: the savings of the population should support the production from his widget factory.   For about 30 years we have experienced a credit boom in this country that was not created by excess savings. This trend couldn't continue forever. Look around you. At the end of the day, an economy is simply a group of people getting together to buy and sell stuff and services. Right now there is a lot of debt, and little cash. Who will be doing the buying?" Wait, if everyone isn't buying things and saving money instead, who is left to get loans to buy things at higher rates? Banks don't wag the consumer's tail. Banks will make loads more money on their variable rate loans which will hurt a lot of people. Until wages rise to incentivize buying things, loan interest rates need to be low. Only way to spur the economy is to get more money in the hands of the spenders. We keep giving it to the hoarders. Remind me again who held and was willing to loan out that debt?  The investor classes partly created the risk environment that they now want protection from. convenient.   If they're going to sit on their savings, they're going to comparatively lose more to inflation, so what you think will happen probably wouldn't happen. And even if they do, savings don't receive preferential tax treatment anyways.