For those of you who don’t feel comfortable investing in the market or don’t know where to invest your money, here are some good questions to start with.
Come up a yes/no/meh answer after reading the question. If you can’t answer it, it might be worth researching the topic a little. The money we earn is the most tangible representation of our efforts in society – it’s worth treating that money as valuable.
For you engineer minds, you only need to be 80% of the answer. And it only needs to hold true over the next 50 years.
#1. Do you believe in the US economy?
#2. Will the US currency (USD) continue to exist?
#3. Do you believe that the economy will eventually recover after the next market crash?
#4. Do you believe that the US stock market will continue to exist?
#5. Will inflation continue to drive up the price of goods and services?
#6. Do you have definite plans to start your own business in the future?
Below, read the potential interpretations of the answers you might have given above. You may not agree, but it’s a good way to reflect on our economic beliefs.
#1. Invest or Not to Invest
If you answered “yes” to question #1 then why not share in some of the profitability of your economy?
If you believe that your country’s economy is sound then it makes little sense not to invest your money in the market.
If you don’t believe that the economic structure of the US is sound and that it won’t be around much longer, the right thing to do would be to leave it. Or at least invest your future efforts in a secondary economy.
#2. Investing Locally
If you believe in the US economy then you likely also believe in the US dollar. If so, investing locally makes sense; as opposed to investing overseas, such as through international stocks or foreign currency.
Maybe you don’t believe that the US economy will fair too well in the future. But you might believe that other countries and currencies will do just fine.
Based on that, investing in international stocks might make sense. Maybe Europe, maybe Southeast Asia.
I have investments in both Spain and the US – I also believe the US economy will do fine.
#3. Fear of Losing Money
If you believe that the economy will tank from time to time but eventually recover, you’re probably safe investing in stocks and bonds, riding out a stock market collapse.
You will likely lose money when zooming out to a handful of years. But zooming out further, your portfolio will likely trend upwards.
However, if you believe that the next economic decline will wipe out the US, ya’ best move to another country. May I suggest Spain?
#4 Investing in the Stock Market
If you answered yes to #4 then you could use your money to become a little richer based on your beliefs.
You are already invested in the economy – you’re working in it after all. You also have money in a checking or savings account – so you already made an investment choice there.
You might as well make a choice which will return higher profits for acceptable risks.
I know that my $4 cup of coffee in LA will be $5 in a couple of years and will go up from there.
If you believe this then you believe in inflation. If so, you cannot have your money in a checking account or in anything which earns you less than 3% per year. Otherwise, you’d just be losing money every year. Which is only avoidable by investing your money during your wealth accumulation phase.
#6. Invest in Your Own Business
Now, if you believe that you’ll have your own business some day, that would be a good argument for NOT investing your money in the stock market.
Assuming that you will start a chain of laundromats or dental offices or a real estate empire, you’re going to need your cash in order to fund that business.
In that case, keep the money in cash or in a CD. You might still lose a little towards inflation but at least you’ll have liquidity to start your business.
Investing in the Market vs. Not Investing
I’m 41 years old. If I could save $100,000 this year and didn’t invest it, it would be likely be worth as little as $50,000; that’s due to inflation.
If I invested the money in a stock ETF or index fund and I got an average return of 5% per year, I would end up with $340,000 by age 65.
So, the decision to invest vs not invest could cost me (potentially) $240,000.
This isn’t meant to be an argument for investing. There is still a risk with investing, sure. I’m trying to just highlight the numbers to start a dialogue in our heads.
The math of becoming a millionaire, if that’s your jam, is rather simple. And there are many solid ways of reaching your desired net worth.