Why Invest at all?

If you are earning a US $100,000.00 annually, it’s probably easy to understand why you would not bother to invest. A person who is earning that much always has the possibility of earning even more. So, if you are like the guy who had seen his income progressed from say, US$40k to US$1-M annually, within a period of five (5) years, you probably have the right to think that your income will continue to grow substantially in the coming years.

That is, unless you committed a fatal mistake and got fired midway on the sixth (6th) year. What happens now, if the mistake you committed caused you to lose your credibility to do the job you are so good at that they are willing to pay you up to seven figures?

Well, it’s back to the gutters again isn’t it? But none of the high flying, nose thumbing, Ivy leaguers who climbed up the corporate ladder fast would think that their feet will be touching earth again any time soon. Maybe they are right. Maybe they are not so right.

A former New York Stock Exchange president, Richard Whitney, went bankrupt and even went to prison. Charles Schwab, former president of the largest US Steel company died a pauper. Now, did I hear anybody say that his future is guaranteed?

Oh, of course, there are people out there who have so much money they don’t even feel that the prices – of practically everything – are rising. But how many of us are like them? Okay, you’d say: “sure, we cannot all be Rockefellers, or Rothschilds, or Gettys but why not just save or stash away the money in a safe place? Why invest at all and put your money at risk?

Maybe putting your money at risk makes more sense if you still don’t have a barn full of them. But while they may differ a bit, the reasons why you have to invest your money are almost practically the same whether you have a hundred tons of them or just a few pounds of them. You have to keep your money growing. Otherwise, you are bound to lose them.

Why? Because of this word: Inflation.

If you are like me whose first mental picture of that word (inflation) the first time I heard it was a big blank wall, let me try to change that picture. Imagine that you built a wooden house in a farm where the soil was not treated with chemicals used to kill insects. If you look at your house immediately after it was built, you will see a house that is sturdy, maybe even magnificent, and you are sure that it will stand the test of time.

Maybe you built it so strong that no matter how many cyclones and hurricanes visited it, it will remain standing. And maybe it can really withstand even the worst of whatever the ever changing climate cast on it – at least until the Termites move in.
Termites, in this little portrait of ours, would be the pesky “inflation.” The sturdy house would be the money (no matter how much or how little) you have. Inflation, like termites, never sleeps. They just keep gnawing away, sometimes in tiny microscopic bites, at times in bigger chunks. Well, okay, they always bite teeny weenie bit small but keep ignoring what they are doing and you’ll soon see how big a destruction they make.

Termites, to our “techy” friends who may not have had the chance to see them in real-life (due to the proliferation of insecticides and construction of concrete buildings) are like some of those computer viruses that erase your files bit by bit that, as of yet, has no known cure. In fact, it is worse than that. In a matter of months or even weeks anti-virus companies usually come up with a program that can delete, if not repair, a file that has been infected with the worst kind of malwares.

Whereas, inflation has been there since time immemorial and it is still there. Strong and well, alive and kicking, nibbling away…the value of our hard earned money.

How do we fight inflation? I’m not sure we can if by fighting we mean that, after we have defeated it, it will not longer pester us. It will continue to affect our finances for as long as we live – and even after that.

The only thing we can do is to deal with it.

We cannot deal with it by just putting our money in some savings account in a bank. That would be like trying to avoid being run-over by a bullet train by lying across its railways. Okay, I don’t mean to be gory but… banks just pay too little interests and, worse, the government gets the first crack of whatever you make there in the form of taxes!

Some studies have shown that during normal times, inflation averages around 3.5% annually. If your money is not earning that much, after tax, in a savings account, in normal times, you are actually not saving money. You are losing it to inflation. Now, consider a time when the price of oil and other commodities are racing towards the other galaxies! Inflation would be what, 6.5% to 7% annually?

And don’t even think that is the worst inflation can do. In some countries, depending on their political and economic conditions, inflation figures are the ones shooting thru the roofs! Some real horror stories tell of a situation wherein you need a cartwheel load of money to buy a tiny loaf of bread. What if we are caught in that kind of situation and we don’t have a cartwheel load of money?

Oh darn, I almost forget, a cartwheel load of money can only buy a tiny loaf of bread… once!!!

cheers!

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