When the general level of prices for goods and services in an economy consistently rises over several decades, the real purchasing power of funds held as physical currency will steadily ______, making it an unsuitable vehicle for long-term goals like retirement savings.
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Money as a Small Fraction of Household Wealth
Long-Term Savings Strategy Evaluation
A recent college graduate is planning for retirement, which is 40 years away. They are debating whether to place all their long-term savings into a standard bank savings account that earns minimal interest or into a diversified portfolio of financial assets. Which statement best evaluates the suitability of the bank savings account for this long-term goal?
Evaluating Cash as a Long-Term Asset
Two friends, Maya and Liam, each receive a $10,000 gift. They both plan to use this money for a major purchase in 20 years. Maya stores her $10,000 in cash in a secure safe at home. Liam invests his $10,000 in a portfolio of financial assets that are expected to generate returns. Assuming the general level of prices for goods and services in the economy steadily increases over the next 20 years, which of the following statements most accurately compares their financial positions after two decades?
For a long-term savings goal set 25 years in the future, an individual is in a better financial position holding their funds in a non-interest-bearing checking account than as physical cash, assuming the average cost of goods and services consistently rises over the period.
An individual is planning for a long-term savings goal 30 years away. Match each method of holding funds to its most likely impact on the funds' real purchasing power over this period, assuming the average cost of goods and services consistently rises.
Rationale for Asset Allocation in Long-Term Savings
Impact of Price Level Changes on Long-Term Cash Savings
When the general level of prices for goods and services in an economy consistently rises over several decades, the real purchasing power of funds held as physical currency will steadily ______, making it an unsuitable vehicle for long-term goals like retirement savings.
An individual is planning to save for a long-term goal that is 30 years away. Assume that over this period, the average cost of goods and services is expected to consistently rise. Arrange the following methods for holding savings from LEAST effective to MOST effective in terms of growing the real purchasing power of the funds.