The goal of an investment is twofold.
First, you’re looking for a way to set money aside and keep it secure. Second, you want to grow that money to increase your purchasing power.
While many investment vehicles promise to do just that, the truth is that you will actually lose money by investing in the wrong vehicle.
One such investment is a bank CD, which remains a popular choice despite its obvious weaknesses. In a CD, or certificate of deposit, you place money in an insured and secure account with a guaranteed rate of interest.
After the CD has matured in a few months or years, you can withdraw the money and the interest. As investments go, CDs are very safe.
There is little risk of losing the money that you put into a CD as you might if you’d invested in a failing stock.
However, the safety offered by a CD is offset by its very low interest rates.
Today, many Bank CDs are offering rates at a fraction of a percent each year. In fact, according to BankRate.com, the national average for a 1 year CD is .23%.
This isn’t just slow growth: This is an actual loss of value thanks to inflation.
Curious to know How Inflation is Robbing Your Investments?
Inflation currently sits at around 2 percent. This means that the money you put in the bank today will be worth 2 percent less than it will be in a year.
For example, imagine that you want to buy a new fancy flat screen TV that costs $1,000 today. Assuming the price of TVs stays consistent with inflation, that same TV would cost $1,020 next year. If you set aside your money in a CD with a 0.5 percent interest rate, you wouldn’t have enough to buy the TV after a year.
This is an oversimplification of course, but it illustrates the biggest failing of safe investments: When the return on your investment can’t keep up with the cost of inflation, your purchasing power is diminished.
Investing as a Wealth Creation Tool
A smart investment doesn’t just keep your money safe. It also creates more wealth and extends your purchasing power. If this wasn’t a goal for most people, there would be no market for the many investment vehicles available, from CDs to mutual funds and IRAs.
People could simply put their money in a savings account or an envelope under the mattress and call it a day.
Also most people don’t do this because there are better investment options available. Saving money for retirement isn’t just about putting earnings aside today. It’s also about allowing those earnings to grow and develop a passive income of their own so that you can have a higher quality of life during your golden years.
A college fund that grows in value throughout a child’s life is far more valuable than a piggy bank filled with spare change.
The solution then is to find an investment that’s relatively secure yet can still act as a wealth creation vehicle. Fortunately, such opportunities do exist if you know where to look for them.
One great wealth creation vehicle is Real Estate that can generate a Passive Income Machine.
Property tends to appreciate in value over time, and it’s a purchase of something tangible, which makes it immediately more secure than other investment options. Best of all, properties can generate income even as they appreciate in value.
When you buy a property, you can rent it out to someone for steady rental income. This is much more valuable than the interest on any safe investment, and it exists separately from the property’s appreciating cash value. The result is a powerful investment vehicle that generates real income constantly, not just when you sell it.
If you have some extra money and are planning to invest, think outside of the box and look at investments beyond the bank.
Investment properties can provide a valuable way to grow your money in a relatively low-risk environment, and you never have to worry about losing your purchasing power under the tide of inflation.