Some of my friends tell me that they prefer to keep their money in time deposits and savings accounts rather than put it in investments like stocks, mutual funds, and other investment instruments. (Note: time deposits earn like .75% effectively while savings deposits earn less than 1% or .25%)
I’m certain that 10 years from now…
- Tuition fees will increase by 50%;
- The price of 1 kilo chicken will double;
- Gas prices, medical bills will also rise.
Given the above scenario, are time deposits and savings accounts really safe investments? Prices will increase inevitably.
If your money is not earning at least as the same rate as the inflation rate, then your money is losing value – and that’s a guarantee: you are losing like an average of 3% a year (if the average inflation rate is 4% and the interest rate is 1%).
Why not go for other investment instruments. A bond fund that gives an average 5 year return of 5% is way better than the .75% given by banks.
If you are a moderate or aggressive investor, you can even earn as much as 10% to 15% (annualized).
Take advantage of the low inflation rate these days. It’s between 2.4% to 2.6% so you can certainly pick an investment instrument that can beat the inflation rate.
Talk about guaranteed loss vs. real returns.
Bottomline, you need to be conscious about the purchasing power of your money vis-à-vis inflation rate. That way, you won’t find yourself buying less with the money that you have saved up in the future when you have saved and invested your money wisely.
That in essence, is what makes it a safe investment: Invest in instruments that will beat inflation.