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Investing isn’t as hard (or as risky) as it seems, but it’s a lot of information and it does take some time to learn, which turns many people off of it altogether. However, if you’ve been putting it off and you have a hefty amount of cash savings, consider the problem of inflation.
Whether it’s under your bed in or in a savings account, cash is subject to inflation. And as Quartz points out, inflation is not your friend.
Now, if you have an emergency fund or modest savings, this advice is probably not for you. It’s good to have a reasonable amount of cash liquid (meaning easily accessible), in case of an emergency. However, if your long-term savings strategy is to hoard cash in a traditional savings account where it earns 2-3 per cent interest (at most), you might as well be stuffing money under your mattress.
Our current inflation rate is at 1.9 per cent and since 1951, it’s averaged 5.04 per cent. This means the money you’re storing in your 2 per cent interest rate account is declining in value over time. It probably doesn’t seem like much of a difference now, but staying this course when you retire means losing out on quite a bit of growth. You’ll have to save even harder for even longer.
If you want to crunch the numbers yourself, check out the RBA’s inflation calculator. You can plug in your own numbers and compare how much your savings will be worth with and without inflation.
Investing isn’t just intimidating, it can also be scary because there is some risk involved with any kind of investing. It’s hard to “let go” of that money! However, if you’re doing it properly, investing is not as risky as you might think. It’s also necessary if you want to offset the cost of inflation.