By Cedric Vinclair, Managing Partner of Vinclair Investment Partners
For a long time I, like most in our clients, believed that investing was “risky” which my hard-earned wealth would be best kept safe basically left it in a bank. However, has I began my very own personal investment journey and started researching wealth, I saw that I was really losing money leave it inside a bank.
It's hard to believe, right?
The concept that keeping my money in a bank meant my wealth was decreasing was shocking to me and my family. As I looked at the figures and starting looking at the wealth projections, I realised it was going to take double the amount of time to retire if I left my capital in a bank.
In today's article, we're going to consider the three logic behind why not investing is riskier than investing.
Not investing meant I only had one source of income
One of the concepts in investing is the concept of “active income” and “passive income,” this idea alone completely changed generate an income viewed wealth generation.
An “active income” is one that you have to work for, in order to put it one other way, basically didn't actively go out and earn it the cash would stop.
“Passive income” is wealth that's gotten while not having to work with it. For example; rental income from properties, dividends from stocks, or capital appreciation from property.
I realised that my only supply of wealth was from an active income; my job. Basically became ill or was unable to work with whatever reason that income source would stop. If that source of income stopped I wouldn't have the ability to:
- Save for retirement
- Look after my family
- Live the lifestyle I needed to live
With just one income source, it had been like I was going on a 4×4 excursion and not packing an extra tire. Basically would minimise my risk of failure, I'd need a back-up source of income to protect me should my active income source disappear.
It's costing me money to help keep my wealth “safe”
Here's a graph that terrified me:
This shows the eye rank of Swiss banks in the last 10 years. We're currently inside a climate of negative interest this means that banks are charging us money to help keep our cash with them.
I realize that if I leave my wealth in a bank it's guaranteed that I will lose that $7,500. However, after i started purchasing property not only was my capital secured against a tangible asset, it actually was generating wealth for me personally and my loved ones.
But it isn't all not so good news.
The low interest ranks for savings means that there are historically low interest rates for lending. Which means that mortgages on real estate are at an all-time low .
With how cheap mortgages currently are it makes the “risk” of property investing much lower, due to a heightened safety margin of profit in Swiss property deals.
My pension won't be worth what I thought
With the interest rate drop in the banking sector, private pensions and governmental pension schemes rates of interest also have dropped. Similarly, due to people living longer and the unexpected 2008 financial crash, Swiss pensions are underperforming and some analysts predict that the pension system is going to be bankrupt within 10 years.
Simply put; counting on a pension is looking just like a risky option.
Here are my three reasons why In my opinion not investing is riskier than investing:
- Only having one income source increases the outcome of not being able to work
- Money left in a bank is losing its value
- The pension market is within large amount of pressure and could suffer important changes