Back when the dollar was sound, American families invested in simple - and safe - instruments like savings bonds. Now, thanks to Washington's inflationary policies, they have to chase higher - and riskier - returns.
The American Institute for Economic Research (AIER) first published a book called "How to Invest Wisely" in 1947. Since then there have been vast changes in the United States and world economies, especially in the financial markets. One of the biggest changes has been the relentless erosion in the purchasing power of the dollar.
Six decades ago, the phrase "sound as a dollar" meant something. It didn't have the ironic ring it has today. At that time, Americans believed that the dollar was "good as gold." Most families' wealth consisted of savings accounts, savings bonds, life insurance policies, and money tucked away in cookie jars and shoe boxes.
Today, even working-class and middle-class families typically are invested in the stock market. Some of the pension funds they will need when they retire may, in fact, be invested in high-risk stocks, mutual funds, real estate investment trusts (REITs) and even hedge funds.
Have Americans simply become riskier over the years? No. They've been forced to chase higher returns because inflationary policies of the federal government have undermined their traditional forms of investment.
Two generations ago, the investments of most Americans were safe and paid relatively low interest rates. Interest on passbook savings accounts, for example, was typically calculated on the minimum balance during the calendar quarter and was posted at the end of the quarter. This meant that any funds withdrawn or deposited during the quarter earned no interest.
Today, families have a wide variety of "fixed-dollar" options, including money market funds, upon which checks may be written, with interest accrued daily.
Much of what we now take for granted was made possible by advances in information technology. The increased speed and accuracy of data processing has facilitated complex financial transactions, even in small amounts, at greatly lowered costs. As a result, many more people now own stock and other financial assets.
In 1947, direct and indirect ownership of company stock was limited to a relatively small minority of the public. Brokerage commissions were fixed at high rates. Funded pension plans were in their infancy. And there were only a handful of mutual funds in operation: 98 in 1950, according to the Investment Company Institute.
Today there are more than 8,000 mutual funds - more than the total number of publicly traded US companies - and some 51. …