Decisions decisions!

If you managed to build up some assets during the good times, or if you kept out of debt and still have some spare money coming in you are among the lucky ones. But you have some important decisions to make that will affect your financial security and well-being, especially if you are approaching retirement.

You can do nothing, that's the easy option, but consider that if you have money in savings accounts the rate of interest being paid by most banks is below the rate of inflation. That means your money is losing value every day! Your nest-egg is getting smaller every day.

What can the prudent investor do?

Sitting back and watching is easy, but may be costly.

While interest rates are low there are two things happening that politicians are loathe to talk about or even mention. Interest is what builds pensions. Pension funds can only pay out because they have huge amounts of money invested and it's the returns on those investments that pay the pensions. When interest rates are low there is less money flowing into the pension funds, but they are still having to pay out the pensions of all those former employees. Hence the so-called 'pension black-holes'. What that means is that the investments and contributions from current employees are not enough to pay the current pensions and running costs of the scheme and continue to build enough value to pay future pensions.

This is why more and more companies of closing their final salary pension schemes and moving to 'money purchase' pensions.

A prime cause of this (in the UK) was Gordon Brown's decision to strip pension funds of certain tax benefits. Yes, this resulted in massive revenue for the government, but now the chickens are coming home to roost and pension most funds have problems. A well-known example is British Airways, whose pension fund has a 3 billion pound black-hole. What that means is that to keep pace with its pension liabilities British Airways needs to pay 3 billion pounds into the pension fund. The Royal Mail has a similar problem and its pension deficit is estimated at 7 billion pounds while British Telecom has a similar 7 to 9 billion pound deficit.

This is serious stuff, but no-one is talking about it. No-one is mentioning that while interest rates are low these massive problems are getting worse every day.

The UK Labour government has opted for a policy of printing money under the name of 'quantitative easing', so far this policy has resulted in 200 billion pounds of new money being printed. We are in uncharted territory as far as the effect this will have on inflation and the future value of the pound.

One thing is clear, the price of gold and silver has ramped up vastly since all this new money was printed.

The result is likely to be inflation of a grand scale so that the government can pay back these debts with pounds that are worth much less, which means everyone with investments will be paying the price.