October 31, 2020

Stocks and Roll

AI-Assisted Stock Advisor

Buying Power of Your Cash

I am very happy with 2% of interest that I get from my saving account. My money is always there and I keep adding 2% per year to my saving account. Why should I risk losing my available cash by investing in stock market?

We all have probably heard these kinds of arguments. And to be honest with you, these are solid arguments. Safety and security contribute a lot to the foundations of our daily decision making system. Some people are more comfortable with taking risks, some people are not.

Here at Stocks n’ Roll, we try to look a an argument from multiple view points. Let us see the pros and cons of this argument:

Pros:

  • Your cash stays safe
  • You add (at most) 2% per year to your available cash

Const:

  • You are ignoring a basic fact in economy: your cash keeps losing its buying power (aka inflation). Let me put it this way: the cost of buying a coke was only 5 cents in 1970. How much is it today?

By a simple calculation, you will find out that $1 in 1980 would be equal to $3.11 in 2020. Even if we assume that inflation rate is equal to the interest rate of your saving account, you would have $3.11 in 2020.

Now let’s assume that instead of saving your cash in your bank account, you would invested $1 in stock market in 1980. By a simple calculation, you find out that your $1 (in 1980) would be $62.76 in 2020.

Let us summarize this:

19802020
Saving Account$1$3.11
Stock Market$1$62.76

This simple analysis shows that over a long run, your cash keeps losing its value and stock market would be a better option if you would like to add more value to your available cash.

%d bloggers like this: