so many people don't have this financial education right when I was growing up
the only way that I could think of money was cash right and I would hear about
Bill Gates and you know how he has like 50 60 billion back then I was thinking
oh this guy must have so much money into the bank right into public savings
account or I don't know where does he hold so much money but the problem is
that all of the richest people they most of them they don't have cash right they
probably have around 0.5% of their wealth into cash and why is that because
cash is a very very bad way to hold your money right so how do these people get
so rich and how do they keep their wealth and how over time they get
wealthier and wealthier now that happens is because the biggest part of their net
worth comes from shares and equity in companies and real estate and that's the
truth let's look at Wikipedia the world's billionaires index and for 2018
right we have Jeff Bezos at one hundred and twelve billion dollars right but
source of wealth is Amazon right and how does that happen well he has a big
percentage of the shares of Amazon and Jeff Bezos last year was on third place
and had seventy two point eight billion and we can see that for a year from
seventy two he has gone up to hunt one hundred and twelve and the way that
happens is because when we look at the Amazon stock price in one year it has
gone up 96 percent and of course since he is invested into Amazon his net worth
skyrockets so that's how all the richest people's held their money right and we
can see Bill Gates source of wealth Microsoft Warren Buffett Berkshire
Hathaway but not all nodes LVMH which is basically a lot of brands
including rivet on Mark Zuckerberg Facebook
Amancio tag Zehra and so on and so forth so why is
investing and having equity so important because if the alternatives are really
bad right what are the main two alternatives cash and charging your
money into a savings account into a bank so first I want to discuss cash and why
holding cash is actually quite bad because cash by design is inflationary
object cash is made so that there is inflation and then there is amazing
video by the amazing vitaly oh that explains how economy works in about 30
minutes it's very easy to understand it's brilliant I'll put a link into the
description of this video and you can go watch it and understand how economy
works so you know in order for economy to grow you need inflation and when the
inflation is controlled is actually very good and I'm gonna read a bit about that
what's behind inflation that's on investopedia inflation comes about this
demand for goods and services grows in an economy as the money supply in the
economy Rises there is likely to be more demand from customers looking to buy
various goods the rising demand creates a pressure on prices and a rise as more
people are willing to pay for these Goods sales hiked up their prices
another situation that could lead to inflation is when there is an increase
in the cost of production so overall growing economy having more
money means that there is inflation but let's look at the effect of inflation
let's say you have $100 into a savings account that pays a 1% interest rate
after a year you have 101 dollars into your account during this period if
inflation runs 2% you would have to have 102 dollars to make up the impact of the
higher prices since you have 101 though that means that you have actually lost
1% of your purchasing power which means that if you hold cash you are vulnerable
to inflation if hold cash overtime even though that the
number of how much money you have doesn't change your actual buying power
decreases over time you lose your buying power another thing that's very
important about cash is that you are subjected to swings into the price
compared to other currencies because when you have cash you probably have
mainly one currency let's look at the pound against the door into a period of
what four years the pound has lost over twenty four even over twenty five
percent of its value which means that people that had thousands of pounds you
know back in 2014 now even though this you have these thousand pounds they're
buying power against the door is 25 percent lower in the same time remember
that inflation is also compounding it around one to two percent per year which
means that these thousand pounds if they want to buy something from America now
can buy them probably somewhere around thirty five to forty percent less than
what they could buy just four years ago so they these people lost more than 30%
of their buying power in a short span of four or four years so in short if you're
holding cash over time you are losing buying power because of inflation and
compound it with that you lose power because it's very probable that your
currency might lose value against other currencies
what about savings accounts right this is the second option which a lot of
people go about and you know this was my mindset in the problem with that and why
this video is so important is because if you don't have someone that's you know
doing finance or business or entrepreneur into your family around you
it's very hard to get out of this mine said I didn't talk anything about net
worth about shares about equity you know how inflation affects you and
you know how you can make use of that then turn your money to work for you
instead of you losing your bank power the second thing that gets so many
people is savings accounts and we know that banks these some of the highest
rates of savings account received around 1.8 percent per year but if we look at
the actual inflation per year we can see that in u.s. it is between 2 to 2.8
percent in the last two three years which means that if you hold your money
into a savings account used you lose buying power because of inflation the
second thing is you still subjected to swings into currencies and the third
thing is most banks will not let you actually withdraw money or you know
handle your money which means that you don't even have access you know to your
own funds let's talk about why investing is so good so this is a chart of the S&P
500 index which basically tracks the 500 biggest companies in u.s. which are
basically some of the biggest companies in the world overall which means that it
is a quite good indicator what the stock market overall is doing so we can see
here I've opened the all-time chart of the S&P 500 and what we could observe is
that at any period over 15 years the stock market is higher than where it was
before that and into a very big percentage of the time in every period
of 5 to 10 years the stock market is high and it was and you know we can
follow that from 1950 to 2018 if you invest into the S&P 500 which means that
it's super simple right you invest into index you don't have to choose companies
don't implant the stand companies you just invest into the economy right
because these basically tracks the economy if you invest introduced the
economy into an index let's see what happens so if I opened here a kind of
reverse compound calculator and here have calculated the interest rate that
you would gain if you get invested in s AP 500 back in 1950 when it began so I
want to see how much on all the data that we have over time how much is the
interest rate and we can see that back in from 1950 basis the ACP started at
around sixteen point nine and now in 2018 it is a two thousand eight hundred
fifty this is sixty eight point six years and
we are calculating the annual interest rate and we can see that we get an
annual appreciation of seven point seven six percent seven point seven six
percent with inflation we said at around two percent at the moment right so okay
but let's look at some more interesting stuff okay let's look at if you invested
exactly at the best possible time at the downturn in through the 2008 crisis if
we look at this back in 2008 GAAP was around 683 and now as we said this at
two thousand eight hundred fifty and that's it into a time frame of nine and
a half years we can see that this is again of sixteen point three percent per
year with a savings account giving you one point eight and with cash giving you
zero right so we can see the difference and you would say yes but nobody can
time the market right that's what you say all the time like you know nobody
can invest the best time and I say okay let's look what if you invest at the
worst time okay if you invested exactly at the top before the crisis and you
never sold stayed invested into the index let's see what happens
okay the peak here before the crisis is around 1550 60 and as we said now we had
two thousand eight hundred fifty and that's almost eleven years what we get
is again if we invested at the worst time in the last ten years you still get
five point seven compounded interest rate per year five point seven which
means that you cover your inflation rate in you still get three point seven
percent gain of buying power per year what is even better is that stocks have
something called dividend yield which means that stocks give you back money
just to hold them and on average the SI p 500 companies which is what you'll be
invested in you have a dividend yield as we see in the last twenty years around
two percent over all over time it's been actually much higher but let's take the
last two percent which means that on top of this five point seven percent
compound interest rate when you put two percent up you get seven point seven
right this is the worst time if we to which we take the seven point seven
percent which is on the all-time average interest rate and you put 2% that's nine
point seven percent historically on average you would get as a game if we
invested just into basically the economic of United States and here I
have opened a very simple compound interest calculator
and what if you started right now with zero dollars you get your nine point
seven percent annual rate because you invest in the S&P 500 use a new safe
five hundred dollars per month for 30 years and the numbers that we get
actually really really interesting into the first ten years starting from zero
in investing into the SA P 500 you have $100,000 in 20 years you have
$368 and into 30 years you have over a million safe that's how all the rich
people have money that's how they become richer and that's why over time the
richer become richer because they invest their money they don't call them cash
they don't spend them on stupid stuff that loses value they invest them thank
you for listening I hope you enjoyed this video comment on anything you want
to down into the comments and also consider checking out my patreon page
which is on patreon.com slash in travursel where you can support the
channel so I can create more and also access quite interesting content about
investing technology mindset and anything else thank you for listening
see you next time
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