Did you know that the money you parked in the bank is rotting? You are probably wondering how this could be since money is not perishable. Well, the truth is the amount of cash you have in the bank will, after a while, buy less goods. Given enough time, your money in the bank, the same money you spent so much time and effort and sacrifice saving and scrimping, will be worth absolutely nothing. That’s right-zero, goose egg, zilch. Welcome to the dismal world of inflation.
Inflation is not just a word you hear kicked around on Bloomberg or CNBC, it is a real threat to your personal bottom line, and if you don’t focus on dealing with it, it can rob you of money when you least expected it. That’s right-it can rob you of benefits when it comes time for you to retire. The good news is that there is something you can do to fight off inflation. You can reverse inflation’s ability to reduce your money’s purchasing power over time.
In fact, you can use time to your advantage and end up making more money instead of just preserving your money’s purchasing power. You can invest your money.
Investing is all about return
When you invest money, you put your money to work. Instead of you having to break a sweat working to earn money, your money works for you. At the very least, your money can earn interest. At the very best, your money can help businesses achieve great growth targets at a huge return.
Regardless of how you invest your money, your money will be doing the working instead of your muscles. Isn’t that a great thing? After all, money doesn’t get tired. Money doesn’t take breaks. Money doesn’t punch the clock when the clock hits 5. The bad news is that not all the investment opportunities you come across are worth it. You have to be very careful where to invest your money.
Where to park your cash
The rule for investments is simple: the more risk you take, the more you are rewarded. This is crucial. You can’t invest your money in investment vehicles that don’t have any risks. You will barely get your money back with interest but taxes and inflation will cut into your gains. This is why, during low interest periods, putting your money in an interest-bearing account in a bank is a losing proposition.
You should take more risks to get more rewards. You can invest in stocks. Stocks can yield up to 10 to 25 percent per year. Not too shabby. The downside is the fact that markets also correct themselves. You don’t want to be in the market when it is taking a bath. When it does, you have to fight off the urge to jump out. When you do this, you cement your losses. Just ride the downturn.
In fact, if you can earn more money from your job, invest in the downturn so your average stock cost is lower. When the market recovers, the stock only needs to hit a lower price point for you to break even. You can invest in options, bonds, and other vehicles. The key here is to find the investment vehicle that has the right risk profile for your personal situation. You have to be comfortable with the vehicle.
The next step is to buy in and dig in. Don’t jump out at the earliest sign of problems. Dig in for the long haul.