Ultimate Safety

Even though the values of our most Americans' investments are down, it is times like these that prove the value of mutual funds and their diversification. (This would include funds held within variable annuities as well as managed funds within corporate retirement plans such as deferred compensation plans and 401(k)s.) Even Wachovia, traditionally thought of as one of the most conservative and strongest banks, has seen the price of its stock drop 80%.

80%. That is $100,000 dropping to $20,000.

As evidenced by the hasty government bailout of these troubled institutions, it would only take one unsupported failure to bring down the whole banking system, likely wiping out banking depositor’s savings. FDIC was never intended, nor could it bail out every depositor if the banking dominoes ever begin to fall.

In a systemic failure, dollars, government bonds and bank deposits would almost certainly be worthless. All paper is only a promise. When the one making the promise fails, you lose.

None of us know just how close we just came to that event this week.

Brick and mortar companies, gold and silver and real estate continue to be your safest bet going forward, in spite of their short term volatility.