What are Safe Money Investments in your Terms?
What is your version of safe money investments?
When asked to define a safe money investment, would that include a bank savings account or a money market savings account? This is something you need to ask yourself early on, while still learning how to invest.
Understanding your own vision of safety and riskiness regarding investment choices is essential if you are to be comfortable with them. What’s the point of being worried sick about your savings? You would quit the your program at exactly the wrong time, as countless others have done in recent years.
In my opinion, Wealthy Investor Weekly, for a number of reasons including the overall growth of capital, is as safe an investment vehicle as you can get. We have even been able to eliminate a great deal of volatility. Markets will still fall, as they always have, but for the most part you will be standing on the sidelines. Losses have been reduced to fewer than 1 in 8 but you have to have patience and trust. You will not be invested all the time.
With earnings far greater than you likely have now, the system may be your only conservative way to recover from recent stock market losses.
Bank savings accounts dangerous over time
Your feelings about safety or riskiness will not be the same as everyone else’s, but I’ll give you mine. It may help you to think about your own and develop an investment philosophy that’s right for you.
Adding ‘investment’ to ‘safe money’ changes the picture dramatically. There is a huge difference between investment money and money put aside in event of sickness, layoff or for a purchase months down the road. Investment money is money not needed for at least 10 years. The stock market can be dangerous in the short term, as we know from recent years. People are turned off in droves, but those losses have always been recovered over relatively short periods in the portfolio was properly diversified.
Many consider a bank savings account to be the safest kind of investment they could make, though events with some banks late in 2008 may have opened their eyes. I suggest bank savings accounts are possibly the most dangerous places of all for long-term savings. They don’t obviously fall in value so they lull with a false sense of security.
Slightly better than under the mattress
Parking short-term money in a savings account is better than under the mattress in terms of security. (But make sure it’s FDIC insured; money market mutual funds are not though they are pretty safe.)
Bank accounts – it is the false sense of safety that makes them so dangerous – are more certain to lose over time than some of the most volatile shares. Some of the latter at least turn out to be amazingly profitable and to compensate for many of the losers.
To prove why savings accounts make awful investments, consider this: What rate of interest does a savings account pay today? Write this figure down. What is the current inflation rate? How much do state and federal taxes take from what you earn? If you don’t know the rate, do a Google search. Say you had $10,000 in a savings account for investment purposes. Let’s say optimistically it earns 2.5%.
Simple calculation proves risk
Assume inflation is 2%, and that taxes take a modest 25%. Here’s the result: your account at the end of one year would show a balance of $10,250. That’s good! Inflation would reduce the purchasing power of this to $10,045. That’s bad! Taxes on the presumed $250 gain would take a further $63, leaving you able to buy $9,982 in goods for the privilege of allowing the bank to use $10,000 of your money for a year. Does it make sense to lend the bank your money and pay it for the privilege? What would happen over 20 years?
A safe investment should be one that, over time, beats inflation and, after taxes, allows you to buy goods and services of a greater value than the original capital. Safety is not about quantity of dollars, it’s about what you can do with those dollars when you want to spend them. Sure, there is a lack of volatility with a bank savings account, a certificate of deposit or money market savings account, but don’t equate stability with safety, or volatility with danger. They are by no means the same thing.
Volatile but not dangerous
Just as one of hundreds of examples, would you expect the manufacturer of Band-Aid®, the most popular baby powder of all time (remember that fresh smell?), Listerine, Tylenol and Visine, among others, to run into such difficulty they could not continue? In the ’70s and ’80s this stock would have sent you to sleep, but dramatic gains have been made in many of the subsequent years.
Despite that, if you’d bought greedily and sold in panic you would probably have needed a shopping cart of Band-Aids to cover your battered bank account. But long term, no one would consider owning a piece of Johnson & Johnson to be dangerous. Consider your objective for saving and how that determines your choices of safe money investment.
2 Responses to “What are Safe Money Investments in your Terms?”
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Useful information as per usual, thank you very much. I do hope this sort of thing gets more exposure.
When privately-owned banks create money as ‘loans’, the profits (interest and seignorage) go back to them. If we had more public banks, we could bank with them, get our ‘loans’ from them too, and the profits would go back to the owners as before except that this time, it being a public bank, it’s us! Every time we took out a bank ‘loan’, we the community would be the ones to profit, not private bankers! So, then let’s bring on the publicly owned banks, right? Wrong! Northern Rock [a UK savings and mortgage bank], the only entirely publicly-owned bank we have in the country, is being sold by the government, the one supposed to act in the best interests of the electorate, back to the banking community that ruined it in the first place! This is a disaster.