Around how old are you?

For a retiree who does not have the benefit of a taxpayer funded pension, a portfolio of assets offering negative real returns requires either accepting declining living standards as one ages or a significantly higher amount of accumulated savings (which will at least delay or, at worst, frustrate, the timing of your retirement).

I’m happy to go with 2-3 years worth of living expenses in cash/near cash and take the real loss on that investment so that I don’t end up being forced to liquidate assets at unfavourable prices, but everything else is going into higher yielding risk assets – real estate and equities which have at least the potential to grow over time. The emphasis is on yield (without making the mistake of reaching for it). If the cash flow is good enough, what the assets are worth on any give day is irrelevant. In the context of a 40+ year retirement, I’ll sleep a lot easier at night holding mostly equities and real estate than I will if I have my life savings in assets which I know will lose a little bit of their real value each and every year.

Stock prices and home prices are subject to the opinion of the market. So while a “net worth” calculation is good to know, it’s not too meaningful. Having an expensive home and other expensive assets doesn’t work out so well if there isn’t cash flow to keep the game going.

Cash is good, but subject to risk as well. As you’ve pointed out, federal and state mismanagement has led to printing of cash, plus there are deficits, etc. Having too much worth in cash makes inflation risk the largest risk to a portfolio. Plus, perhaps the biggest risk for the average person is that they are unable to save enough for retirement- so having too low of a rate of return is a risk in and of itself. Cash is just a promise that is only as good as the organization making the promise- the US federal government (or other countries).

Buying assets and products that generate cash flow, to me, is the most “real” sort of value. Dividend paying stocks, interest paying bonds, distribution paying partnerships, ownership stakes in private companies, and rental property, are assets that produce cash on an ongoing basis. Diversifying into numerous sorts of asset classes reduces total risk- stocks, partnerships, and rental property hedge against inflation risk, while bonds help smooth out volatility and act as a cushion during recession. Most corporations today are in better financial shape than countries are, and large stock price drops don’t affect the ability to pay dividends and distributions- only the success or failure of those companies’ fundamental operations determine that.