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At i-Cthru we share your feelings of unease when it comes to investing and risk. We don’t like to lose our hard-earned savings and are risk averse. We, like you, read a lot of headlines, but are non wiser when it comes to popular opinions of the stock market. Was the crash of 2008 not clearly going to happen with all that leverage?
Are the markets overvalued after having gained so much? Is there another stock market bubble in the making? What about all those investment funds that embezzled money, who can we trust and how was this possible? Even the 2013 Nobel Prize for Economics had to be shared among conflicting stock market theories. You have better things to do than sorting this riddle out, too risky. You keep your cash in a savings account and concentrate on whatever you do best to earn more.
Time is your enemy when it comes to inflation. Your savings, which you are working hard for, are actually DECREASING in terms of buying power due to inflation. Have a look at the CPI Inflation Calculator and play with it. For instance, it shows that $100 today has the same buying power as $62.72 in 1994 (20 years). This means you would have to make 60% on top of your $62.72 in 1994 just to keep up with a more expensive life 20 years later. How much do you make in your savings account? Aaaah, do I have your attention?
A simple way to keep up with inflation, especially over 20 years, is investing in successful companies. The services or products from these companies often increase in price over time, keeping up with inflation or better. This is the main reason you have to consider being in the stock market. Investing in proven businesses with a low perceived market risk will reward you with sufficient return to beat inflation. Forget all the short-term noise. Forget the mumbo jumbo of Wall Street. Keep calm and remain patient. However, when it comes to building your wealth or keeping up your buying power, you have to act now.
Now, think about 20 years. This is a long time and a lot can happen. Who looks this far out? Well, for one, you could lose significant buying power as pointed out above. You see, risk comes in many forms. But try to think about inflation risk the next time you put on a helmet when you go skydiving, trying to steal the cheese or simply put on your seatbelt when driving. Investing in successful companies, is your helmet against inflation….