A Quick And Dirty Education
First let’s start by asking the question, why is it that the average person has little to no knowledge of this hugely important aspect of building wealth? Did you learn it in public school? We didn’t. It’s unfortunate. From our perspective, we feel like it is one of the biggest disservices society does to its youth. Unless you have a savvy investor at home, you likely only learn about it from the movies, and most of that stuff is a pretty bad representation. Until Rory was in his late 20’s he had a lot of fear associated with the big bad stock market to the extent that he thought about investing in only tangible assets later in life (gold, land, real estate etc.) We both are caught making the statement “I wish we knew about this stuff when we were 20, we would be retired by now” at least once a month.
It’s a valid question, and most people don’t know the answer because they are motivated by fear. Why are they motivated by fear? It’s simple, there is no form of investing that does not carry risk. Generally the bigger the risk the bigger the reward, and although no reward required no risk, it feels safe. People are always afraid that they will invest their money in some paper investment they don’t understand, and they will wake up one day to it vanishing before their eyes. It certainly does happen, but what we have come to understand is that the risks can be reasonably mitigated, and the alternative to investing has a guaranteed downside to it. Let’s talk about some of the common verbiage that will help get you up to speed on what we have learned over the years.
When Rory was in the Marine Corps and was protecting an embassy in Monrovia, Liberia during their 2003 civil war, he acquired some local cash (Something Kristen and Rory did separately before meeting each other) and what he found was a $1 American bill yielded him a bundle of Liberian cash that made him feel like a drug dealer. You see, the Liberian government had been just printing money on paper for years to pay for their debts and bribes, and they had done it so much that their paper money was all but worthless. This is a product of hyper-inflation.
Say you have a surplus of cash each month. Our year looks like we will be investing an average of $7,900 a month. We are investing this money in various ways/places, but imagine for a moment that we were not, what would our other options be? We could spend it… If you’ve come to know us at all at this point you know that’s not an option. We could save the cash in a safe or hiding spot in the house. No thanks! That sounds like a heck of a lot of risk of it being stolen, our house burning to the ground, or some other unforeseen thing happening to it and giving us a 100% loss. We could fill a swimming pool with it and swim around in the cash like McDuck (Rory’s personal favorite) OR we could do the reasonable thing with the cash and put it in a checking or savings account, why not right? It’s safe, costs nothing or close to nothing for the convenience, and is FDIC insured for up to $250,000. What’s possibly to lose in this scenario? The answer is the current inflation rate of 1.7%, which doesn’t seem like much, but as U.S. Inflation rate chugs away at this seemingly slow rate, it eats away at your savings without you even seeing it.
Why Inflation Will Ruin You And You MUST Invest
Let’s imagine for a moment that the return rate of your savings account is the same as inflation. You would check your bank statements and see your money growing by 1.7%, so how could it be a bad thing considering how safe it is? The answer is that inflation happens between the numbers, you will never SEE inflation. Even if you were fortunate enough to get 1.7% interest on a savings account (very unlikely) your money would be worth less and less every year. That is to say the BUYING POWER of your money is worth less and less every year. So, although a safe short term place to store cash, it is a slow and steady way to lose the wealth you accumulate. Your only option is to OUTRUN the inflation rate with something that earns money faster than it can be taken from you.
Hopefully this far into our blog we have convinced you to you CAN increase your income, you CAN decrease your expenses, and that you MUST invest the remainder to avoid losing your hard-earned money to inflation. In the next blog we will discuss the different options we have explored so far in our process. We will explain the pros and cons of each option, how they work, what we have chosen to do for our investments, and some options that we have not chosen yet, but hope to dabble with in the future.