Invest to beat Inflation
[updated on 7/30/2014 with a different opinion.]
Inflation is the “general increase in prices and fall in the purchasing power of money” (1). The basic reward of investing, as opposed to hoarding cash in a safe, is to earn returns that exceed the rate of inflation.
“The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor” (2).
1. Google search engine, 3/2/2013
2. William Bernstein, Rational Expectations: Asset Allocation for Investing Adults. 2014.
Start young ….. and enjoy your growth
The breakeven point at 22 years is a milestone to show when the young investor’s retirement savings surpass the projected total payment of $51. At this milestone the ‘investor’ will have $53 and the ‘hoarder’ will have only $23. The ‘hoarder’ must wait 50 years to accumulate $51 and can never match the investor’s savings of $464 reached through the magic of compounded returns.
There is no guarantee that investing $1 per year will generate $464 after 50 years, but history tells us the chances are pretty good. We are assuming that the market generates dividends and capital gains at the average annual rate of 7%. The dividends and capital gains are called returns. Faithful reinvestment of these returns will multiply the accumulated value of our imaginary investment by 7% per year. If $51 generates $464 after 50 years, the compounded returns are $464-$51, or $413. Learn about becoming a young investor by reading Hey Kids.
knowledge is you way to wealth
Robert Kiyosaki author of ‘Rich Dad Poor Dad’ travelled the road to wealth just as you and I are doing. He was fortunate to have his best friends father,who was financially successful, as his guide and mentor. His journey was certainly not ‘get rich quick’ he had his ups and downs along the way. His rich dad said to him, “All you need to do to make more money is simply focus on becoming a better investor.”
So it comes back to education yet again, ‘Rich Dad’s Guide to Investing” can certainly help you on your investment journey.
Robert Kiyosaki with Sharon L. Lechter CPA, have covered the rules of investing from the basic investor to the sophisticated investor level in this part 3 of the ‘Rich Dad Poor Dad’ series. It is a learning book covering subjects from, being prepared mentally to invest and becoming financially literate, to asking…
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