One of the worst but most used way is to store your wealth in cash (bank account). It’s wildly popular with heartbreaking consequences.
Traditional way of saving money looks like this:
Problem with traditional wealth accumulation system is short life. Difficult to have enough time to accumulate big wealth. In traditional investment advised to play safe. Main idea is to save your base amount and lost investment opportunities. Interest rate not beating inflation especially if you live in country with high inflation rate. For example inflation per year in Congo 41.7%, South Sudan 117%, Venezuela 1,698,488% . Even in developed countries average inflation rate 2.5% per year. That means:
Interest rate-inflation=wealth growth %
All currencies in the world are fiat currency. That means it’s inconvertible, paper or electronic money legally accepted by governments to use. Value maintained by government. Money not backed up by physical commodity (gold, silver) and not exchangeable on physical commodity. Fiat money linked with risk of becoming worthless in any moment. Here’s a few examples how easy and fast money could became just papers:
To understand why printed pieces of paper called money we need to take a look into history:
Through the history people preferred to use valuable items as middle in exchange. Everything changed in 20th century when idea of money not backed up by metals became accepted. Exchange rate between currencies fluctuate based on government policies and forex manipulations. This leads to change in purchase power. As more money issued as more inflation as more devaluation. Money lose purchase power and that’s why it’s terrible advice to store it on savings account. There’s plenty of options: self education, real estate, land parcels, manufacturing units, intellectual property rights, equity, angel investment, precious metals, collectible items, infrastructure projects etc.
Investment and wealth building is long game which requires deep knowledge in what you invest.
In next article I’ll write about self education as form of investment.
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Great post 🙂