Cash is great, but it’s a terrible investment. Cash is just a tool. It helps you buy stuff, feed your kids, keep sheltered—you know, live. But, cash needn’t just be spent; it can be invested.
Doing that grows your wealth. That’s the secret rich people know.
See, holding cash is a wealth-killer. It doesn’t just keep you from growing your wealth; you’ll keep losing it. That’s right: Holding cash makes you poorer. I know, this may sound completely absurd, but, I assure you, it’s true. It’s as true as the sky being blue and the water being wet.
How inflation works against you
And that truth about cash losing value has a name: It’s called inflation. That’s when things and services that we buy get more expensive over time. For instance, the real estate market is getting more expensive, so are rents, groceries, even our Netflix subscription. Prices go up. That’s inflation at work.
And if prices are inflating, and you’re in cash, that means your cash’s inherent value is going down. That’s because it will take more cash to buy the things you were buying as the prices go up. We’ve all heard about how older people say, “in my day” a candy bar was a nickel and buying a house was $30,000. Now, it’s not that; it’s much more expensive. Our dollars don’t go nearly as far as they used to. That’s inflation.
To beat inflation, invest
So this is where rich-people-thinking shines: They invest.
There are all types of places to invest your cash, like bonds, real estate, starting a small business, etc. But, for this post, I’m going to focus on stocks. That’s the stock market, where anyone with some cash and a brokerage account can buy pieces in companies like Apple, Google, Netflix, etc.
Since money loses its value over time, you need to find ways to increase your money’s value. And investing in stocks is one of the best ways to do that.
You see, companies, or at least good ones, grow. They innovate, make new products, gain more customers, sell advertising, make shows we binge because the pandemic is driving us nuts. And all of that generates more value. And that value generation occurs faster than inflation. For tech stocks, it’s often much much faster, like blow-your-freakin-underwear-off fast.
The power of investing in technology stocks
In the stock market, tech companies in general have been giving investors returns that would usually only be available to venture capitalists. What I mean is that the stock market historically has given investors a 10% increase on their invested money’s value. But, some tech stocks in the past decade see hundreds or thousands of percentage growth. For example, people who invested in Amazon’s IPO and held on to 2020 would have seen a 120,000% increase in their investment. Yeah, let that sink in.
So if you’re experiencing that type of growth in a stock you’ve invested in, you will beat inflation easily. Here are some simple numbers to chew on.
Inflation often grows at 2-3% a year, so that means your money is going down that much yearly if it’s in cash. That means $100 becomes $99 or $98 rotting away in your bank account or under your mattress, after inflation has its way with it after a year. But if you took that $100 and put it into a tech stock, let’s say Netflix and the stock price goes up 100% in two years, which has happened, your $100 will be $200. Now I haven’t adjusted for inflation. But the point is your cash, when invested well, can grow incredibly despite inflation.
Yes, stocks can go down. And, they do. There have been times when I’ve lost money on a stock. But, really, if you hold on to those stocks, most of them go back up. See, just because a stock plummets doesn’t mean you need to sell it. If you hold on and bear the pain of “losing” money and stay patient, most stocks rise back up and will increase even higher than where you initially invested.
Time is really the secret sauce for investing. When an investor shows patience, they will exceed their expectations of how much they can grow their cash.
And if you do that, you won’t just beat inflation.
You’ll be rich.