What are you doing with your money right now?

I'm guessing that majority of people in the world only put their money in the bank to earn interest. They feel that it is safe and no risk at all. True that it is safe in a sense, because you will not lose the money. But you must know that it is risky, because the value of your money may go down. This is due to inflation and inflation rate is usually always higher than the interest rate that you get in your saving.

Example:

Singapore 2011 inflation rate is about 5%.
Bank annual saving interest rate is 0.125%.

As you may know, inflation is the percentage increase in the price of goods and services. This is common sense, the number above means that prices have increase by 5% while your saving in the bank only grow by 0.125%. So your money is losing value! Big time! Sooner or later, you won't be able to buy anything, because your saving is actually decreasing in value.


Image taken from http://www.finehomebuilding.com

Have you heard about the 72 rule? It is a very simple formula which can tell you how much time you need to double up your money. Of course this is just approximation.

Example:

If you invest $5,000 at 8% interest per year, you will double your money in 72/8 = 9 years.

So if you invest $5,000 at 1% interest per year, you will only double your money in 72 years.


Now do you think you still growing your money in the bank? The facts said no. I am not saying that bank is not good. Bank is good for you to keep some of your money, for your house, personal, daily expenses and cash for emergency. But other than that, you should diversify and invest some of your money, be it a business, stocks, unit trusts, structured deposits, properties, gold, etc. Just try, rather than guaranteed losing value of your money in the bank. Think long term, think about the potential higher return. But let me say this, never ever put all your money for investment because there are risks involved also. You can earn more but you also can lose money. You should know that there are no perfect product. Therefore, use the money wisely.

Cheers! Have a great day.