Number One Reason To Invest- Fight Inflation
A lot of people don't want to invest their money because of a fear of losing their money. There has been a lot of news about people losing money on investments (ie the technology funds that crashed early this decade) and it acts as a barrier to people who do not want to lose their money through investment. What they do not understand is they are losing the value of their money even without investing.
Using an inflation calculator, $10,000 dollars in 2007 has the same buying power in 1987 of $5452.31. This means that what you buy today which cost you say $100 is likely to cost around $184.40 20 years later. So how do you prevent your 10,000 from losing around half their value 20 years later?
The best way is through investments. As my previous post in my blog has already touch on a little on why stocks and shares is the best investment tool in the long run, I will not deal with stocks and shares but will look at the other major investment tool available. First, is using deposits in banks or fixed deposits to fight inflation. The interests varies from 0.25% to 4 or 5% for fixed deposits. The next category of investment has higher returns, which is the bonds of companies and treasury bills of countries. This can pay higher returns of 1 or 2% above the deposit interest rates.
So how did it do? If you look at the chart of the real returns from stocks and bonds(ie, adjusted for inflation), you will see that the bonds hardly made a dent on the market and is showing very flat returns while the stocks of large companies were showing good returns that is far and away the better investment tool. The only thing is that you'd have to live for 78 years and started investing when you are a baby. :)
The point is that stocks and shares is the way to go whether it is that or the derivative versions, you need this tool to save the value of your money and at the same time make it work harder for you.
Good sites to read more about this post: http://askmerrill.ml.com/publish/marketing_centers/articles/inv_article_I058/
http://www.investorsfriend.com/asset_performance.htm
May 13, 2010 at 7:42 AM
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