Have you ever wondered why investing and growing your money was so important? In this article, we’ll take a deep-dive into why it matters so much – and what you should be doing to grow your wealth.
It’s true – investments and investing can be daunting, especially when you’re new to the saving and investing game. The good news is that it’s actually really simple…once you understand a few key ideas.
We’ll be covering these ideas in this article, and feel free to skip ahead if you feel you’re already versed in a particular concept. To break things down, here’s what we’ll be looking at:
- What investing actually is
- Why hiding your money under the mattress is a good idea
- Why investing your money is an even greater idea
In this article, we’ll be focusing on monetary investing (i.e.: investing your hard-earned cash), rather than other forms of investments (such as time, or intellectual property). Let’s dive in…
1. What investing actually is
According to Investopedia, the term “investing” is defined as “…the act of allocating resources, usually capital (i.e., money), with the expectation of generating an income, profit, or gains.” [1]
In terms of your hard-earned cash, investing simply means putting your money to use in order to grow it, rather than just letting it sit idle and not create any form of benefit at all.
There are many different ways to get started in the investment world, and although we won’t specifically be unpacking them in this article, here are some of the more popular investment options[1][2]:
- Stocks (think Google, Apple, or Microsoft)
- Funds (such as ETFs)
- Investment trusts (like real estate investment trusts, or REITs)
- Commodities (such as gold, or oil)
Dropping your money into one (or more), of those investment “vehicles” above, your money would “grow” whenever you received any form of income from those investments. This would differ between each investment type, but you would typically expect your income to come in the form of dividends, interest payments, or just plain-old price appreciation when the value of whatever you invested in went up. We’ll cover more on the different types of investment income in an upcoming article.
2. Why hiding your money under the mattress is a good idea
This might sound strange, but hiding your cash somewhere in your house for safe-keeping is often a good idea for a couple of reasons[3].
The convenience of having access to your money is probably the one that comes to mind first – saving time trying to find an ATM in an emergency is a great benefit, even if that emergency is just for a pizza delivery. As long as you’re keeping it safe from access by others, this concept of money-convenience is a huge bonus.
It’s also freely accessible. You wouldn’t have to worry about paying for transport to go to the bank, or the fees you might incur having the bank hold it for you. Unfortunately, these pros come at some heavy costs…
3. Why investing your money is an even greater idea
One thing we’re neglecting to mention here is the concept of inflation – the general rise in prices, or alternatively the decline in purchasing power, over time[4]. The need to grow your money at least at the same rate as inflation is growing the price of things is far more valuable than any of the conveniences of keeping your mattress stuffed.
Simply put, as the cost of things goes up, you’d want to keep your money equally strong. If you weren’t able to buy something today that you were able to buy yesterday, just because prices went up, you effectively have become poorer. This is why it’s critical to ensure that your hard-earned money is remaining just as valuable as it was yesterday. If not, you’re literally watching it erode away.
As a simple example, consider the following:
The coffee price a year ago – R20.00
The coffee price today – R21.50
Your R20 note from last year would not have been able to buy you a coffee today, and that’s all thanks to inflation (and the barista adding in some cinnamon to your daily latte).
If you invested your R20 in an income-bearing fund that produced a return of 8.5% per year (don’t worry too much about the math here), your money would be worth R21.70! Your money has grown, and faster than the inflation of prices at your favourite coffee shop. That’s the power of investing.
Conclusion
Hopefully it’s clear to see that investing and investments are a clear winner when it comes to making your money “work for you”, and at least ensure that you’re not losing out when it comes to things like inflation.
We’ll be diving into more detail on some of the topics covered here in future articles. In the mean time, consider your own position at the moment, and how you could benefit from not only growing your money, but increasing your wealth over-and-above what inflation is taking away.
Looking for a great tool to help you in your own investment decisions? Have a look at our AI-based investment simulator Finn – you’ll gain some keen investment insights from an AI that loves investing:
References
[1] Picardo, E. (2022, July 22). Investing Explained: Types of Investments and How To Get Started. Investopedia. https://www.investopedia.com/terms/i/investing.asp
[2] Napoletano, E. and Curry, B. (2022, April 4). What Is Investing? How Can You Start Investing? Forbes Advisor. https://www.forbes.com/advisor/investing/what-is-investing/
[3] Paquin, P. (2017, March 22). The Pros And Cons Of Saving Money ‘Under The Mattress’. SavingAdvice.com Blog. https://www.savingadvice.com/articles/2017/03/22/1048257_saving-money-under-the-mattress.html
[4] Fernando, J. (2023, June 15). Inflation: What It Is, How It Can Be Controlled, and Extreme Examples. Investopedia. https://www.investopedia.com/terms/i/inflation.asp
Photo by Andre Taissin on Unsplash