One of the most common questions we get asked at Simplewealth is: “why should I invest my money in the first place?”
After all, instead of investing, you could simply leave it in cash.
The good thing with cash: it’s always there when you need it, on a savings account.
The thing to consider with cash, however, is:
- Cash on its own does not generate return (i.e. it does not grow)
- It’s harder to save with liquid cash
- Cash can “lose value” due to inflation
- Cash in your Bank Account is actually legally owned by the bank – you only have a claim to that money
Cash on its own does not generate a return
Cash does not grow unless it has a high interest rate – but do any Swiss Bank Accounts offer a high interest rate at the moment?
Overall, markets can grow fast. Thomas Piketty in his book “The Capital in 21st Century” explains that returns from capital grow a lot faster than revenues from work/employment.
This is due to the structure of the capital markets: indices have a “survivor bias”, i.e. the companies whose market cap decreases are taken out and the bigger ones are getting in.
As a result, over the long term, stock indices in Europe, in the US or in Switzerland have grown faster than inflation and revenues from work/employment.
If you want to buy a house in a few years or save for your retirement, investing early on by yourself or with a service like Simplewealth, means reaping the compound benefits from several years of market growth.
It’s harder to save with liquid cash
Studies show that illiquid assets avoid “impulse spending” and enable you to be more disciplined in working towards your investment goals.
Cash can lose value due to inflation
Cash can depreciate due to inflation. Inflation means that there is a general increase in prices and a fall in the purchasing value of money. If the purchasing power of your cash decreases then the vlaue of that cash decreases. You need to receive interest at at least the rate of inflation to stay neutral.
Cash in your Bank Account is actually legally owned by the bank
Cash in your bank account is actually legally owned by the bank. When you put money into your bank account you are actually loaning money to the bank to use as it chooses. The bank has a contractual agreement with you to repay you the amount of money that is in your bank account.
When you own a stock or an ETF, you hold that in your own name and it is yours. A custodian holds that stock for you and for your benefit.
Simplify your investment strategy
At Simplewealth, we believe investing should be made easy and that you can benefit from a tailor-made portfolio of ETFs.
You can take a first look at your investment profile, for free, here www.simplewealth.ch