- Pittsburgh Investor
Why NOT Investing can guarantee losses
The decision on investing for most investors comes down to risk and reward. Should I invest any of my hard earned money that I worked a 12 hour shift, sacrificed for, sweated for, and was exhausted in order to receive my payment? This makes total sense, why put that at risk? Here's a few reasons why you need to, and why you are guaranteed losses if you don't invest.
A high income earner, or even anyone who has built up a sizable savings has a decision to make. What to do with that extra cash? There are almost infinite choices to this question, but most of them are the wrong answer. Some people feel the key to building their wealth is to never take risk and sit on bundles of cash. The first reason why this is not the best decision is inflation. Inflation is the rising prices of goods and services and the decrease in the purchasing power of your money. In plain english, it means if you have $100,000 in cash today, it won't be able to purchase $100,000 worth of goods in 20 years, it will be substantially less. Since 1913, the average estimated rate of inflation has been 3.15% per year. This means if you are not earning at least 3.15% on your savings, you are losing wealth each year! Now let's look at the average savings rate in America. As of the end of May, 2020, the average savings account is offering an interest rate of .06%. That means most people are losing 3% of their purchasing power every year! Talk about taking a risk, that's not just a risk, but a guaranteed failure.
The other guarantee is lack of income. If you are willing to work 60 hour weeks and produce a great income and buy luxury items and fancy trips, that's great, but if that income goes away due to a layoff, business failure or any other unfortunate event, you're left with zero income. If you want to eventually retire and work when you want, instead of being forced to work everyday, that will never be possible living off a savings account that is losing purchasing power each year. It is inevitable that you must work to produce any income besides maybe social security. After considering these very real scenarios, it should make the concept of investing less scary. Yes all investments have a risk of losing capital. The other option is to never invest in anything, and guarantee a loss in purchasing power, and guarantee you will work forever to produce an income. To me, it seems like a no brainer to take some risk and manage it properly to reap rewards with money, as opposed to guaranteeing a loss overtime by not investing. The beauty of investing is there are options for any individual. This includes conservative funds, growth funds, some guaranteed options, real estate, businesses, startups, lending, and much more. Everyone has a skill set that they've developed through the years. I can assure you there is an investment vehicle that is applicable to that and can reduce your risk in investing as you have an edge and expertise in that area.