Economy of WEALTH. Why You Should Start INVESTING NOW. Inflation, Savings & Compounding Explained.


hey everybody I’m Sam and this is Entiversal and today’s video is probably one of the most important videos that I have
shared ever and it is about why is investing so important why all of us
should invest 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 and
you say 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
and investing into the SMP 500 you have a hundred thousand dollars in 20 years
you have weakened with sixty eight dollars and into thirty years you have
over a million saved so why is investing and having equity so important because
of 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 in the
rise as more people are willing to pay for these goods sellers 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 to 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 you hold cash over time 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 case
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 24 even over 25 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 their 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 35 to 40 percent less 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 years now there’s a lot of news about the Turkish lira right that’s you
know being falling in five years the Turkish lira has lost 68 percent of its
value compared to the US dollar in a single month the Turkish lira had lost
over 28 percent of its value against the US dollar and we know that the US is the
strongest economy in the world we know we in a globalized world so you know
their imports from a lot of different countries so buying a car or buying
anything that’s manufactured even parts of it into a different country puts you
at a vulnerable position of swings of currencies so in short if you’re holding
cash over time you are losing buying power because of inflation and
compounded 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 entry of a million around
you it’s very hard to get out of this mindset 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 and 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 we see today around 1.8% 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 you still lose
buying power because of inflation the second thing is you still subjected to
swings in two 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 five to ten years
the stock market is higher than 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 an index you don’t have to choose companies don’t need to
understand 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 sa P 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 from 1950 based the ACP started at
around 16.9 and now in 2018 it is a 2,850
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 the ACP was
around six hundred eighty three 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 you invested at the worst time okay if you
invested exactly at the top before the crisis and you never sold state invested
into the index let’s see what happens okay the peak here before the crisis
around one thousand five hundred and fifty sixty 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 wait you still get 3.7% game 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 tsap 500 companies which is what you’ll be invested in you have a
dividend yield as we see in the last 20 years around 2% overall over time it’s
been actually much higher but let’s take the last 2% which means that on top of
this 5.7 percent compound interest rate when you put 2% up you get 7.7 right
this is the worst time if we – if we take the 7 point 7 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 and investing into the SI P 500 you have a
hundred thousand dollars in 20 years you have $368 and into thirty years you have
over a million save if you decide to save five hundred dollars per month for
30 years but you do not invest them and hold them cash that means that you have
annual interest rate of zero and you have to account for the inflation which
means that at the end you have 180,000 but the inflation would have eaten at
least 63 thousand dollars from that money which means that you have 120
thousand buying power in over 40 s Dobie that would be even worse after 50 years
that would be even worse which means that the younger you are the more
important for you is to start investing right now now this is yes ap let’s look
at the Nasdaq right Nasdaq tracked special technology companies and it is
perceived as a more risk investment but again into the long haul it’s always
been up as we see here can take much longer the decline we see here is the
2000s tech bubble burst stocks took 15 years to recover but still let’s
calculate some interesting stuff if you invested here in the absolutely low
after the 2008 crisis into the Nasdaq you would have captured 20.8% in your
game let’s see even if you are so unlucky and you invested literally at
the worst time in history into the Nasdaq you invested at exactly the peak
the top of the 2000 tech bubble what we get is over the 18 years you would still
have got 2.4 in your game which is to better than a savings account and it’s
still better than the inflation which means that you still have increasing of
your buying power if we take the gains of the Nasdaq for all time what we get
from 40 almost 8 years of data is that on average the Nasdaq has yielded 9.5
almost 6% per year also the Nasdaq is around 1.4 percent
dividend yield which would grant you around 11% in your game 11% if you just
invest into an index and you can forget about it and just put money in so you
know that’s why investing is the biggest value equation it’s the only long-term
reliable wealth creation that’s how all the rich people have money that’s how
they become richer as you can see over time the markets go up because there are
more people there is more Commerce there is more trade economy stronger that’s
how the world works that’s why we are advancing if you are not some kind of
person that believes that the world is gonna crash and it will never recover
and will go back in time and into civilization instead of forward you
should invest your money five hundred dollars per month for thirty years into
the S&P 500 on average historically looking will let you save 1 million
hopefully over time your salary will grow so instead of five hundred to start
coaching seven hundred thousand and so on which means that in two thirty years
it is absolutely realistic with stuff that’s absolutely achievable by anyone
you can save millions thanks to compounding and investing
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 thank you for
listening see you next time

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