Too many people, probably some of them are your clients, use the terms “saving” and “investing” interchangeably. Nothing could be further from the truth, and you owe it to them to make sure the differences are clear in their heads. Saving is good, right? We wouldn’t argue with that. Too few people set aside a percentage of their monthly income towards improving their long-term financial health. The problem is that saving often results in such low-yield assets like a savings or money market account, certificates of deposit and treasury bonds.

People choose these because they’re allegedly safe. The problem is that the ludicrously low rate of returns are doing a worse disservice than you may realize. How much does your savings account or certificate of deposit pay? Less than 5% probably. In many cases, not even half that. While people who regularly dump their money into savings assets feel they’re at least making a little forward progress, inflation is working very hard to make sure they don’t. They government reports a yearly inflation rate usually in the 3% to 4% range. This means your dollars are losing value at that pace.

This should immediately reveal that you have to make at least the annual inflation rate in order to just break even. Anything less and you’re losing value on your money while it sits there. But the real problem with these savings “assets” is we suspect inflation is much higher than the government lets on. Did you know they don’t figure the costs of gasoline or food into their calculations?

The idea that our public administrators can put out an inflation rate with a straight face, while excluding food and fuel, is ludicrous. We figure the real rate of inflation is around 10%, which means your savings is getting creamed. You’re not just losing money. You’re hemorrhaging it.

The trick is to quickly roll that money you saved into some sort of investment, one that has a decent chance of returning more than 10% each year. While some mutual funds have a decent long term track record exceeding this target, the stock market in general is a big Ponzi scheme crapshoot. It’s your job to educate your clients about how people are able to earn 30% or more through income property investing, allowing them to build wealth and achieve financial independence. You’ve got to help them understand the difference between saving and investing, and do it quick because inflation won’t wait.

The AIPIS Team

(Flickr / Sean MacEntee)