December 2009

Safety is a Rising Income and a Full Glass of Milk

By Don Eberley

“Inflation is when sitting on your nest egg
doesn't give you anything to crow about."


Can you name an investment sold at banks which is completely, 100% safe?

When asked this question, most of us think of GICs, Canada Savings Bonds, or other investments which guarantee our money. That's because money - paper currency - is how we are accustomed to measuring wealth. But over the long term, this might be the wrong focus entirely.

Currency is constantly losing value due to inflation. That milk money you put under your mattress a few years ago might appear safe, but if it buys only half a glass of milk today – representing a 50% loss of protein, calcium and other essential nutrients – then it is hardly a “safe” investment at all.

Today's GIC investors are risking the worst potential case of financial osteoporosis in decades. They are locking in historically-low income levels at a time when inflation is threatening to make a comeback, potentially raising the price of milk and everything else quite significantly.

Conclusion? Safety is not a pile of money under your mattress. Now more than ever, safety is a rising-income investment.

One example of an investment whose income has been consistently rising is Coca Cola, producer of not only the popular fizzy dark soda but also Sprite, Barq's, Dasani, Fruitopia, Oasis, Minute Maid and other popular beverages around the world. Since 1969, the dividend paid to a Coke shareholder has increased by roughly 10% per year on average, or about 4,400% in total. (Source: 145575-coca-cola-dividend-stock-analysis). This should not come as a surprise to anyone who has ever visited a supermarket or restaurant, as Coca-Cola brand products are featured prominently on shelves and menus everywhere. And most importantly, they keep selling even when the price goes up.

Back to our Coke investor. While the cost of living has gone up roughly 480% since 1969 (source:, this clearly posed no challenge to an investor whose income rose 4,400% over the same period. But imagine the poor GIC investor, whose income has declined to nearly zero. Another victim of the wrong definition of "safety".

Okay, but how do you know that Coke won't become the next Enron or Nortel? You don't. That's why you hire a professional mutual fund manager to do the analysis and diversify your money among several other rising-income companies. Don't dabble in individual stocks unless you know what you're doing and have lots of time to do it.

But Coke shares plummeted in 2008... wasn't that risky? Yes, if you chose that particular moment to sell your investment. But with the dividend going up for the 47th year in a row, why on earth would you do a silly thing like that?

When you own a portfolio of good quality, rising income investments, you don't stress out over price fluctuations or mass hysterias. You just sit back and enjoy your rising income... perhaps with some cookies and a full glass of milk.