With more and more people aiming for financial independence, more and more money-making opportunities present themselves. As inflation threatens to eat up the value of your money, people strive to be more financially literate. Which vehicle should I invest my hard-earned money? In this post, we’ll tackle the differences between saving up in a bank and investing in stocks, and cryptocurrencies.
Banks.
Banks are financial institutions where you can deposit and withdraw your money. Interest rates in banks are minute, somewhere around 0.25% annually. Liquidity here is the main advantage when storing money in the bank.
With such low interest rates, you wouldn’t get rich if you “invested” in bank accounts. With inflation rates playing around 3-4% annually, the value of your money would be less than how much you started with.
To give you an example, suppose you have P10,000.00 to start with and you saved everything in a bank account that gives 0.25% interest annually. After 10 years that would amount to P10,125.77. That’s a gain of 125.77! Do you think that’s great? Factor in the inflation rate (let’s say 3.5%), your P10,125.77 would be just P8,525.63! You just lost almost 1.5k of your initial money!
If you want to do your calculations, you can use this calculator!
Stocks
Investing in the stock market can be a bit tricky and would have different returns depending on how you manage it. For this post, I will use the performance of an index funds corporation. The PhilEquity PSE index fund is one of the top-performing funds. As an index fund, it is so diversified that it mimics the performance of the Philippine Stock Exchange index. Money invested here is not that easily liquified which may be taken into consideration before investing. Over 5 years (YTD), this fund has experienced great gains. OInthe year 2014 it displayed a 22% gain and just this 2017, it showed a +25% return! ItItsownside on these 5 years has been only 1-3%. Going back to the example, if you invested your P10,000 in this mutual fund five years ago, you would already have P14,906.96! Almost 5k up! That’s almost a 50% increase in your capital. That would beat inflation!
Cryptocurrency
The most volatile among these vehicles presented. Cryptocurrencies have been known to display gains reaching up to 1,000% in just a single day, and crashing down 40-60% in the same timeframe.
I’ve come across a very astonishing piece of information on Facebook. In this tabulated info, 20 different cryptocurrencies were compiled side-by-side to show how much you could have gained in a SINGLE YEAR if you had bought and held the coin. Be careful though, the gains may be quite out-of-this-world, but the risks are also not a joke. Just this January 2018, the majority of these coins lost value of around 30-60% which may be a lot to take in What I’m saying is that people should choose investment vehicles that fit their personalities. If you’re the type of person who can’t handle seeing a “paper loss” that cuts your portfolio in half, then go with less volatile investments. If you tend to sell at a loss, you’re better off with a less risky investment such as mutual funds.