What qualifies me?
Before I begin let me share bits and pieces of my past and why I think I’m qualified, to a certain extent, to disclose this type of information. I hated math growing up, but loved numbers. How contradictory! What fascinated me about numbers was how and what you could do with them in the simplest manner. Combine that with an entrepreneurial spirit and starting in my early teens I already began indulging in books and material around markets, business and money. I had my first brokers account at age 15, despite being a minor through my dad whom I often touched base with on every opportunity to learn the what and the why’s. In highschool, I remember that in economics class we played the usual stock market game over a period of months and I remember my friends and I continuously caught up in discussion around what to buy and what to sell – I ended up with a significant profit. I started my first business at the age of 17 and made 6 digit revenues within my first months. Reinvested and continued my trend of growth. That doesn’t mean I’m an expert. I have had my dips, my drops, my setbacks. I’ve paid significant amount of taxes and learned from numerous other mistakes. However, its the experience that counts.
So, why invest?
Everyone knows about inflation, but do you follow it? Inflation grows at an average of 3-4% a year. Now mind that this is only what is reported. If you dig into a bit of research most economists would say that statistically the inflation rate in reality is actually closer to an average of 5%. Now that may not be a significant number but put it into perspective. This means that every year the costs of goods go up by an average of 5%. The reason this doesn’t worry us on a day by day basis is that it occurs very quietly. It jumps a little here and creeps up a little there.
If I told you inflation jumps 30% year over year, you would drop your jaw and panic. However with the above numbers, who cares, right? Now get this – your money is eroding away before your eyes if you just do nothing! When I put this into perspective, in laymen terms, your purchasing power or even in other words, your disposable income decreases significantly! So, you need to invest into something that outpaces inflation.
This means if your money is sitting around, under your mattress, on your bank or savings account than it isn’t doing you much good. You need to put your money into something that at least outruns those 3-4% per year. The goal from a basic standpoint is that you should have an investment that allows you to cover inflation without having to touch your income so that you can actually put savings away. When i talk about savings I talk about at least six months worth of what you need RIGHT NOW to maintain your current lifestyle. I bet that currently you do have a savings account however even these accounts (savings) or say CDs (Certificate of Deposit) accounts wont outpace inflation. The best you’ll get is perhaps a fraction of what inflation actually is.
Honestly, my advice for people who put away into their savings account is, great, however that’s not sufficient. That may be good as emergency money for a rainy day. The fridge breaks down, the car needs a repair, something in the house needs to be replaced and so forth, however it just isn’t enough so that your money does not erode away while costs go up. I live in Spain and alone this past year a number of raises (again) where implemented ranging from transportation to electricity. Is that calculated into your budget? Or do you simply shrug off those couple euros? If you do, that’s poor wealth management.
To spur some thought…
To get your thoughts going, here some things you could look at:
- Good blue-chip dividend stocks – These are stocks that usually pay out 2-4% in dividend alone aside from the fact that the stock will appreciate over a mid to long term period.
- Foreign Currency CDs – You can get these at several banks. As an example, the Australian dollar typically has an interest rate higher than inflation.
- Stock ETFs or Mutual Funds – Over time, these tend to outpace inflation. These are longer term investments. Around 5-10 years however typically select ETFs and mutual funds will perform well.
- Corporate bonds and preferred stocks – these will over time outpace inflation and provide some revenue stream whereas savings accounts, etc wont.
Keep in mind that investing is risky. The most important thing I tell to anyone that discusses money, business and markets with me is to understand it. Learn it, devour it, consume it. Basically, do your homework and you cant go wrong. Sure, sometimes things tank but if you are willing to take that educated risk you’ll see a return ten fold of what you invest.
From my point of view I have now broken it down to its simplest economic form of why you need to make your money work for you. Yes, you may have a secure job, for now. You may have some savings, for now. You may have a spouse, parent or sibling, for now. But think about this simple factor of how, in reality, the clock is ticking against you. No matter what interest rate your bank gives you, your money could just as well be under your mattress if you are not covering the increases of costs without touching your income. If you are not managing the rate of inflation on your yearly disposable income than gradually your losing out on larger opportunities. Give it some thought.
I have lots more to disclose around a bunch of topics. Let me know what you think in the comments below. Id love speaking with you and getting some inputs.