Inflation and Investments

There are 2 parts to me in the full comprehension of this truth. The first part was when I was much younger and heard my relatives saying, ''What is the point of putting all the money in the bank. You should invest them,' during their chats when they meet up. At the start, it was me regarding what my relatives say as nonsense, since to me, investments bear risk of losing lots of money should a bad investment be made, therefore I would prefer to keep it all in the bank and at least earn some interest. Then came the explanation about this phenomenon called inflation in the economy, where the general price level in the economy rises, making general cost of living higher and since the money you keep in the bank does not increase at a rate higher than inflation does to the cost of living, you lose money over time unless you save more, and that's come to be known as maintaining the real value of bank savings to me now after having studied Economics for a few years.

The second part is more practical. It is about seeing figures in your everyday life. Yes, you start to notice to how much cheaper goods in the supermarket in the neighbourhood used to cost a few years ago or perhaps more recently from a year ago. If you do join the workforce during your term breaks or summer holidays in the few years of higher education, the change in travelling expenses become noticeable as well since most of us will take public transport on a daily basis. When you start doing your own budgeting with your earnings from the summer jobs or internships and your daily and planned expenses in those years, naturally you would feel the impact of inflation, and that is the second part of truly knowing inflation, and why there is a role for investment in life or other sources of boosting your annual income. 

However, a line should be clearly drawn on how far investment should go. I strongly believe that investment is important as a strategy against inflating prices in the modern world but it should be conducted healthily. By that, I will focus on the attitude I believe one should have with their investments.

In my own personal opinion, investment should always be taken as an additional source of income, and not the only source of wealth. As I have mentioned, investment bears risk, and it is never fully predictable, therefore you would never be entirely sure that an investment will be a good one and brings you additional income, whether it's a large amount or trivial gains. While it is true that there are many people out there that have managed to succeed and consistently made big bucks out of investment alone, I personally do not encourage that anyone be tempted by how easy it SEEMS that money is earned by the successful group of people and follow suit, especially when the mentality and financial status differs. 

Investments should also be made with the investor fully aware of the risk they are taking and truly understanding and accepting that whatever the amount they invest, they could be lost if it turns out bad. To me, investments are almost like gambling. Investors are basically making a bet with their money. Each type of investment, be it bonds, stocks, securities, being a different type of game you have decided to play your bet on, each type with its own market structure and required knowledge much like the rules of each game. The only difference would be it possibly being more well planned and carefully considered with more data for analysis economically to make 'smart investments'. These numbers come in many forms and they are all financial statistics that assist in measuring risk against potential returns from the financial instruments investors have chosen to invest in, such as the Sharpe Ratio, Jensen's alpha, Treynor's measure, and a long list of many other indicators to evaluate the feasibility of an investment. And because the study of these financial data and evaluation is so complex, there are professionals that work for clients that require service in assisting them make smart investments to the best of their abilities. That's how much more statistical investments are. 

Many might be inspired to be an investor after learning about the many successes out there, but do not forget about the even greater amount of losses that's been made by those who failed to consider carefully before investing and whose aftermath goes untold. I am not saying that one should avoid investing at all cost nor am I writing this to scare anyone, but do remember to do it well within one's financial capabilities and with the right mindset. For example, investing only with disposable income available after meeting your daily needs and everything else instead of involving cash flows for those purposes in your investment so that you will not have cash flow problems and end up making bad sales of the financial assets you've bought to meet your priorities, incurring losses.

Investments that turns out bad could become less severe or even become better over time, but the setback is that the cash you have invested in them will be held down while you wait patiently for market value to raise, and that is why investing spare cash might be a better idea. However, even that is not guaranteed, so I would like to reemphasise that if one chooses to invest, then one should do so after knowing and being sure that you are willing to and are able to bear the risk.