One of the phrases you’ll often hear Robert say is “Savers are losers.” This statement can come as a surprise to people who have always been told that saving their money is the smart thing to do. At first glance, it seems illogical – after all, how can you invest if you haven’t saved any money to invest with?
This brings up an important distinction between saving money in the short term and then moving that money into a sound investment, versus saving for the long term and investing in supposedly “safe” investments like mutual funds, bonds, CDs, or just cash in a savings account.
I say “supposedly safe” because the types of long-term investments listed above are not really safer
than any other investment, they are just easier
. They require less financial education but carry the risk that comes from having almost no control over your investment. They also don’t give very good returns compared to more hands-on investments like real estate or owning a business.
When holding your money in cash for the long term there is the added problem of inflation. The interest on most savings accounts does not cover the increase in inflation, which eats away at the buying power of your money. The hard-earned money you put away now could be worth only a fraction of the value (in terms of what it can buy you) 50 years from now. For example, in 1959 the average cost of a new house was $12,400. Today the average cost of a house is around $100,000. That’s an 8-fold increase! So it’s not unlikely that the average cost of a home 50 years from now could be $800,000.
This is why wise investors save for the short term, then use that money to buy investments that bring in regular cash flow
. The beauty of cash flow is that 1) it keeps coming in continually (assuming the asset is managed well) so you don’t have to worry about it running out, and 2) you can raise prices (like the rent on your real estate or the price of your business’s products) to keep pace with inflation, which means your cash flow income keeps pace with inflation.
To invest in ways that bring you good returns and reliable cash flow, the first step is to become financially educated enough to find, buy, and manage good investments. If you neglect your financial education, your options are limited to investments where you have little control and could be left in the cold in your retirement years.
So save your money for now, but invest in your financial education so you can grow your money and have it work for you!