When people think of building wealth and growing their money over time, everyone first focuses on the return of their initial investment. That is an important factor to consider, however, there is likely to be a risk associated with an expected return.
We will delve into risk in future articles, however, in this one I want to share the second biggest risk that people face when it comes to building wealth. It’s not poor decision making (although a significant risk), it’s inflation – the risk that the prices of goods you consume increase over time. One of the biggest ways to combat that risk is to invest in stocks – companies that produce those products that you consume.
Here is an example. What is sitting on your desk or in your front pocket, often in your hands 80% of the time? Your cell phone, everyone has one. Do you know what the average inflation rate has been over the last 11 years that iPhones have been around? Just over 8% PER YEAR.4 To put it in perspective, the S&P 500 has returned 8% over that same time period (and that’s only if you reinvested your dividends – 5.87% if you did not).2
So, what does this mean for you? Well, a few things…
1) When you read about the Consumer Price Index (CPI) and inflation going up, it’s real, but it’s a lot different than what you hear on the news. In July 2018, the Department of Labor released their CPI for the last 12 months and it came out to be 2.9%.3 I don’t see cell phones in their calculations, just the necessities for life – food, oil, gas, electricity, clothing, medical, shelter, new vehicles, and clothing (no one wants you running around naked).1
2) Technology is a HUGE part of everyone’s life, and there are no signs of people getting rid of their top way to interact and connect with other human beings across the globe. Aside for the “would you live here for 3 months with no technology if you got paid $1 Million” picture of a house in a rainforest. Technology purchases in the future will cost a lot more IF you want to have the convenience of being connected to everyone instantly.
3) YOU NEED TO SAVE MONEY! I’m not yelling at you, or maybe I am? But seriously, if you don’t save money then you MUST finance your technological purchase (credit card or your cell phone bill) because you will HAVE to have it if you want any kind of social life.
4) You need to be growing your money, and what is the best way to grow your money? Check out my good friend Reagan’s article HERE on where to invest your money.
To make a short story even longer, the point I want to get across is that your money faces threats and challenges every day and will continue to face those challenges for the rest of the time you have money. The funny thing about money is you will always need it in some respect. To provide income, give away, invest in projects, build companies, buy you time, there is a lot money can do for the good of the world. It isn’t a means to an end, but it can help if used properly. I just want to help people keep more of it in their pockets, instead of it going down the black hole everyone has in their finances.
Want help understanding the risks that you face and that your portfolio faces? Email me at firstname.lastname@example.org and let’s make sure you understand what you are up against. It could save you money, and it may just save your future.
S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results.