Perhaps stating that saving is a bad thing is a bit controversial, even more so if I tell you that when you save you are losing money.
But before I explain how you lose money by saving, let me clarify something first. With this I am not telling you that you have to run out to get all the money you have saved and spend it. Spending 100% of the money you charge is much worse than saving.
With that said, let’s see why by saving we lose money. And there are basically two reasons here: inflation and opportunity cost.
Inflation is skyrocketing in Argentina, with numbers close to 6% monthly. And in the world it is also at record levels. That’s like an hourglass that eats up your capital little by little, even if you have dollars. Inflation is a very important number for all savers since it is the minimum value that we must achieve with our investments. The minimum number that we must obtain so that the water does not cover us. If you simply leave the pesos or dollars in a bank account or under your mattress, you are losing money. There is no escape, no one made any money by keeping dollars in the mattress. It is 100% sure that you will lose purchasing power.
In turn, the second reason why saving is losing money is that the same money invested could have given you a return. For example, if instead of simply having been in a sight savings account, you had placed that money in a fixed term (it is a very bad investment since you lose against inflation, but it is better than doing nothing), you would have gotten an interest rate in return. Not to mention if you invested it in really profitable alternatives like the ones you can get in the capital market (Unlike what happens in a fixed term with a negative real rate).
What is the difference between saving and investing?
At this point you may be wondering what the difference is between the two.
Well, saving is simply saving your money. Have the discipline to set aside a portion of your income, but then do nothing with it. Within this category is also included the fact of buying dollars and keeping them in the mattress.
Suppose you keep $10,000 under your mattress. After 10 years (if you are a saver, this time is clearly an eternity) at most you will continue to have those same USD 10,000.
How at most?
Is that keeping money under the mattress also has its costs. And I’m not talking about the opportunity cost or the inflationary cost. I am referring to specific costs such as the payment of a safe deposit box or the tax cost of declaring that money every year in personal property. And if you have it in your house, you are paying the cost of risking your safety and that of your family. It’s not worth it to not win anything.
Instead, when you invest your money what you are looking for is to multiply your money. That same $10,000 invested at the historical rate of the S&P 500 (9%), would be $10,900 in a year. Does that difference seem small to you? Let’s see it now in a longer term.
I just told you that, if you “save” by only saving USD 10,000 for 10 years, after that time you would have at most the same USD 10,000 (if you did not pay a safe deposit box or taxes). Instead, “investing” your money at the same rate that gave us USD 900 in one year, after 10 years you would have USD 23,674 in your account.
Maybe you think I’m exaggerating. You will say: “Ok Matías, I understood the point, but USD 900 for 10 years is equal to USD 9,000. If I add to that the USD 10,000 that I already had, it gives me USD 19,000 and not the USD 23,674 that you mention.”
Well let me tell you that $23,674 is correct. Why? Due to the effect of compound interest. The second year, it is no longer USD 10,000 that you are investing, but the result of the first year is added: the USD 900.
In this way, with each passing year, the money invested is greater despite the fact that you have not “saved” more. Of course, to activate the power of compound interest in your portfolio you have to invest. Every year that goes by without you doing it, you’re taking away the opportunity to do his work for your portfolio.
And not to mention if the exercise we do is that every year you contribute USD 10,000 more.
In this case, the difference at 5 years is already noticeable: investing you have 30% more than saving. And not to mention as the years go by. Clearly the calculation is not so linear and in the middle there will be volatility, but the difference in the long term is substantial.
A country of savers, but without investors
As a financial advisor, something that I have to see on a daily basis is the difficulty that people have in being able to make the mental click to Go from saver to investor.
“I cannot not have my money for more than a year”, “I am very conservative, I do not feel safe if at some point my money is less than what I have now”, are some of the phrases that I usually hear.
And this makes our country characterized by a lot of people that all they think about is buying dollars. Of course, when I tell you that saving is losing money, I assume that you are not just leaving your pesos in the bank account. Here I also include people who buy dollars.
You do not believe me? Dollar shots like the one we are experiencing now make many people think that simply by buying dollars you are investing and beating inflation. But when you expand the horizon you will see that if you only kept the same dollars, today you buy less things than 15 or 20 years ago..
And this just looking at the inflationary effect, do not forget the opportunity cost. Those same dollars that they only keep under the mattress today would be much more if they had been invested in companies like Apple, Microsoft or Mercado Libre, to name a few.
Taking the leap from saver to investor is one of the most important steps you can take in your financial life. Like your job, physical activity, diet, your health, or any other aspect of life, it is something that will show small results at first but with discipline and even good advice, it will generate impressive results over time. of the years.