Savings = Investing?

With inflation at an all time high in 40 years, more and more people are being forced to consider the idea of investing to outpace inflation, as their wages are unable to keep up. The primary way new investors can tap into the stock market is by investing in Indices such as the S&P 500 Index, as it produces an average annual return of about 10%. For the average Joe, this means that a portion of their already declining real wage needs to be set aside for investing. For the people who are living paycheck to paycheck and struggling with debt, it may be hardly possible to allocate a part of their income towards investing, but that is the only way they can avoid the decline in their inflation-adjusted net worth.

However, if you’re using your savings to invest, are they really “savings”? Are you really saving your hard earned money by investing in this uncertain macro-environment where stock valuation is in a bubble? Most individuals believe that investing in financial assets is the only way to save, which stops it from being perceived as a risk-taking endeavor.

Savings is an “income not spent”. It represents the excess of what one has produced but not yet consumed. However, as central banks print more and more money, savings are perpetually devalued. Put simply, if you do not invest the money you made, its value will diminish fairly quickly. If you do invest the money you made, you are also exposing yourself to macroeconomic risks as well as stock market prices, which is not something that an average investor can calculate. This further substantiates the need for a new, safe-haven asset that will allow investors to tackle the inflation and preserve their wealth reliably.