Let's just say you are getting your money work harder for you by saving it in an instrument that yields an annual return of 4%, such as a Fixed Deposit (FD), at a city where I am living in, the inflation rate is easily 8-12% a year.
What is inflation?
It is explained in Investopedia as a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency
So, if you are living in Penang, KL, Johor Bahru, Kuching or other cities in Malaysia, rather than growing your capital every year, it is losing its value at a rate of 4-8%! You definitely have more money in your account, but unfortunately that same unit of currency can only buy you lesser things you could a year ago.
Take a look at the chart below and you will notice that for every $10,000 you save with a return rate of 4%, by the end of 30 years, you would probably have the buying power equivalent to $2,658 at present day. Well, this is a very high-level illustration but you get the drill.
What is inflation?
It is explained in Investopedia as a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods. Often expressed as a percentage, inflation indicates a decrease in the purchasing power of a nation’s currency
So, if you are living in Penang, KL, Johor Bahru, Kuching or other cities in Malaysia, rather than growing your capital every year, it is losing its value at a rate of 4-8%! You definitely have more money in your account, but unfortunately that same unit of currency can only buy you lesser things you could a year ago.
Take a look at the chart below and you will notice that for every $10,000 you save with a return rate of 4%, by the end of 30 years, you would probably have the buying power equivalent to $2,658 at present day. Well, this is a very high-level illustration but you get the drill.
It is therefore safe to say that as long as you are not investing in an instrument that generates at least 8-12% return annually, you are losing money every single day!
Let's take California as an example, the state inflation rate is around 4%, but the interest rate for conventional financial instrument is also relatively much lower so essentially you are still losing money year after year. Perhaps coupling with an annual average wage increase of 1-2%, you can just knock off the effect of inflation. But again, is your money growing?
It should go without saying now that investing is not just something good to do, it is something you must do! It has become an essential part of sustaining life.
In my case, I must invest in an instrument that consistently generates at least double the return of the inflation rate to be safe, so 20% annual growth is just the right benchmark to start. With that said, any instrument you find that could yield such return is a good one you definitely don't want to miss!
I have been exploring various investment instruments for more than 20 years now and let me save you the agony of all the work and research you have to do to come to a similar conclusion - stock investment and trading!
But can stock investment generate 20% or more return a year consistently? Read more here!
Let's take California as an example, the state inflation rate is around 4%, but the interest rate for conventional financial instrument is also relatively much lower so essentially you are still losing money year after year. Perhaps coupling with an annual average wage increase of 1-2%, you can just knock off the effect of inflation. But again, is your money growing?
It should go without saying now that investing is not just something good to do, it is something you must do! It has become an essential part of sustaining life.
In my case, I must invest in an instrument that consistently generates at least double the return of the inflation rate to be safe, so 20% annual growth is just the right benchmark to start. With that said, any instrument you find that could yield such return is a good one you definitely don't want to miss!
I have been exploring various investment instruments for more than 20 years now and let me save you the agony of all the work and research you have to do to come to a similar conclusion - stock investment and trading!
But can stock investment generate 20% or more return a year consistently? Read more here!