People get it all wrong. We were brought up in a society where putting your money in a savings account helps you “GROW” your money. Which is nothing but WRONG. With rates at 0, you currently can’t gain any money from a savings account and with inflation, at 2% you are losing money in a CD or savings account. I have a buddy at school who has had a CD account for 5 years and has only made $76 dollars from it. If he was taught basic financial education and invested in the s&p 500 5 years ago he would have a return of 44%! that’s an average of 8.8% a year!
Although there is risk in the stock market, if you invest in a low-cost S&P 500 index fund over time there will be no risk. The market always wins bulls always win in the macro. Most people are keeping their money in savings accounts for these two “benefits” One is you can access your money at any time, and the other is you will never lose that money it’s guaranteed to always be there. I’m not saying having absolutely no savings is good, an emergency saving is obviously essential, but too many people want to just put their money in savings and not invest any of it. This is a major problem for me. People who put their money into savings accounts are not making money work for them they are giving it to the bank so they could invest it elsewhere and make money through what you gave them in the savings. The banks and education are evil and don’t inform the average person about these things.
Funny thing is, there are lots of banks that will pay you closer to 2.5 percent on your savings, with no minimum balance and no fees. It’s bewildering that most of us park our money in big, traditional banks, even though they have stiffed us over and over and over again. 4 out of 10 Americans recently admitted that they can’t cough up even $400 in emergency savings. Those of us who can sock something away these days only put, on average, about $6 out of every $100 we earn in a pile somewhere.
The chart below shows a 2% a year savings account WITH OUT taking inflation into account
The chart below shows a 9.8% increase a year which is what the S&P 500 averages
Categories: Financial Advice