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Jeffrey lipton permanent value

The average person in Canada likely knows at least a bit about money, including the need to earn money in order to spend it. Beyond that basic level, however, their knowledge might be a bit vague, especially regarding a concept that financial analysts call money illusion.

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Jeffrey lipton permanent value

  1. 1. Jeffrey Lipton, Permanent Value Asset Management: Explaining Money Illusion
  2. 2. The average person in Canada likely knows at least a bit about money, including the need to earn money in order to spend it. Beyond that basic level, however, their knowledge might be a bit vague, especially regarding a concept that financial analysts call money illusion. Suppose that a pair of sisters lived in two different cities. Both worked at the same type of job, but one earned $5,000 per year more than the other. However, her annual expenses were almost $6,000 more than her sister’s because of the cost of food and housing.
  3. 3. Most people, once they thought the scenario through, would realize that the first sister was really better off than the second, despite her lower salary. However, a few people, in listening to that story, might think that the sister with the higher salary was richer. This is an example of money illusion, a concept that centres around viewing money in nominal terms, as opposed to its true purchasing power.
  4. 4. According to research by Ernst Fehr from the University of Zurich and Jean-Robert Tyran from the University of Copenhagen, money illusion can have a highly detrimental effect on the economy. This is especially the case when business owners respond to inflation by raising prices, but fail to lower them at times of deflation. The fear of losing profits thus translates into higher prices for consumers, who might respond by buying less or choosing to shop elsewhere, as often happens with cross- border shopping by Canadians.
  5. 5. Jeffrey Lipton, a Barbados executive, has seen first-hand the negative effects of money illusion. He is an international finance expert and a Senior Manager. Previously, Jeffrey Lipton held executive investment management positions at Berkeley Hanover, as well as at Permanent Value Asset Management. A prime example of money illusion is in the area of minimum wage over the last few decades. Although the amount of money that minimum wage workers receive has increased, the actual gains have been extremely small, given cost of living increases and inflation rates. Thus, people might think that they are earning more, while they might actually be falling further behind.
  6. 6. In fact, the Globe and Mail reports that when wages are adjusted for inflation, minimum wage workers have received approximately a one cent raise over the past twenty years. Although they are earning more money than in the past, they have not managed to benefit from the increase. For Barbados’ Jeffrey Lipton, the gap between wages and purchasing power has made asset management essential. Much of Jeffrey Lipton’s work has centred around helping clients gain the best return from their investments. With current interest rates in countries like Canada and the United States hovering at about .5%, many people are having trouble earning much on their savings. That’s making investment guidance from executives like Jeffrey Lipton even more critical.
  7. 7. With more individuals looking to invest their money, rather than simply put it in savings accounts, investors need to be sure of the benefits and risks in their investment choices. In Jeffrey Lipton’s view , “No stock or investment choice is a sure bet all of time. However, there are ways to gauge and monitor investment risk ...” With expert monitoring, people can “diversify an existing portfolio while also offering the potential for return on investment.”
  8. 8. Although some financial experts disagree as to how much of an impact money illusion truly has on daily monetary transactions, it’s important to be generally familiar with the concept and to understand that there’s a difference between the numerical value of money and its true purchasing power. Investopedia offers a helpful explanation of the concept. For an even more in- depth look at the concept and general monetary policy, check out themoneyillusion.com.

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The average person in Canada likely knows at least a bit about money, including the need to earn money in order to spend it. Beyond that basic level, however, their knowledge might be a bit vague, especially regarding a concept that financial analysts call money illusion.

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