If you own a bank, you work for a bank or your great grandfather owned a bank and you get hurt by the title of this post because you feel like you’re losing clients, please relax your raised eyebrows. I have nothing against banks. I have been using banks for more than a decade now – both for personal and business purposes. Banks have been helpful to me.
In this post, I will tell you why you should INVEST MONEY and BUILD your RETIREMENT FUND in the stock market. When you put your money in your bank accounts, you’re not investing but just saving up. Investopedia defines a “savings account” as “a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.” The key word is “security”. You’re letting the bank secure your money instead of just putting it in your wallet or in a cabinet. It also defines “investing” as “the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.”
My Experience in Depositing Denominations With One Zero to Many Zeroes
I started banking when I was 13 or 14 years old. From the age of 10 to 16, I was a vendor in a cockpit arena. I was selling cigarettes, soft drinks, candies, fruits and fish. If my memory hasn’t gotten rustic yet, the only items I didn’t sell were illegal drugs, trucks, jumbo jets and submarines. Every Saturday and when there were no classes every Tuesday and Friday, I was working. By the next banking day, I would go to the bank and deposit the PhP30.00 or PhP50.00 I earned.
Fast forward. I quit my job in the corporate world in December 2011. That was the beginning of tsunami-like financial and non-financial blessings in my life. Because I was able to apply my core gift in running my own online services, I was able to earn a life-changing income. It was like a teleportation from South Pole to North Pole. I have experienced depositing denominations with more zeroes.
Why did I tell you my experience when I was banking in from small to large denominations?
I realized that whether you’re SAVING PhP30.00 or PhP3,000,000.00 in your bank account, for most banks, you’ll only enjoy <=1% interest rate. Remember, your interest rate is still taxable. When you withdraw cash from non-allied ATMs, you’ll be charged as well. In reality, your savings account’s interest rate is really less than 1 percent.
In some banks, if you’re depositing that sizeable amount of money on a repeat and long-term basis, the bank may agree on a 2-3 percent interest rate per year. If I were you, bargain for a higher interest rate when there’s a scheduled blue moon. Okay, okay, you get what I’m trying to say now.
Take note, I used the word “saving” and not “investing”.
Banks’ Interest Rates Are Not Keeping Up With the Inflation Rate
If you want to build your retirement fund, don’t do it through savings account. Do it in the stock market. Even if you were able to get the bank manager’s nod in your request of 2 percent interest rate per year because of your charm, the buying power of your money decreases year after year. This is because of the inflation rate. In simple words, the inflation rate is the rate of change in price. For example, let’s say a kilo of apple in 2013 cost PhP100.00. This April 2014, it costs PhP110.00. That price increase is caused by the inflation rate.
The inflation rate may retain, reduce or increase the price. However, the prices of the things we buy always go up. Last month, March, an inflation rate of 3.90 percent was recorded. If your savings account is only earning an interest rate of less than or equal to 1 percent per year, but the prices of items in the market increase by 3 to 4 percent per year, that only means that banks’ offered interest rates cannot fight the ever-growing inflation rate.
My Investment in the Stock Market Knocks Out the Inflation Rate On the First Round
If you have no other investment vehicle that can fight the inflation rate, I should have at least awaken you to the reality that it’s about time to re-calibrate your financial strategy with the inflation rate. One of the very few investment vehicles that can fight the inflation rate is the stock market.
Last year, I opened my eyes to the reality that the interest rate in banks won’t really be able to fight the growing inflation rate, unless banks would raise their interest rates to 6 percent at least (ah, let’s add that to our wish list!).
I started investing in the stock market in July 2013. In nine months, my money has grown by 6.75 percent. Don’t get wowed yet because I’ve just started to allocate 20 to 30 percent of my net profits in my investments in the last 3 months. Well, yes, I was already investing a sizeable amount of money (around 10 percent of my net profits) for the first 6 months, but that was the amount I was ready to lose without any hard feelings.
In my calculation, had I started investing 20 to 30 percent of my net profits, my money should have grown by 10 to 12 percent this April 2014. But great things start from small beginnings.
I do hope this post makes you realize that when you’re just depositing your money in your savings account, you’re only saving up and you’re not investing. Investing happens in the stock market.
- AskJaycee # 10: How to Get My Analysis and Recommendation for 30 Bluechips on April 5, 2020 - March 30, 2020
- AskJaycee # 9: Should Experienced Stock Traders and Investors Teach for Free or for a Fee? - February 16, 2020
- AskJaycee # 8: Impact of Novel Coronavirus to the Philippine Stock Market - January 31, 2020