The Investment Bias
Saving has recently become the boring brother of investing.
There is a certain magical appeal to the idea of making money with money. So many get-rich-quick Ponzi schemes, money games, pyramid schemes and other scams prey on this fascination.
Logically, putting our money where it can grow by itself is brilliant. However, this is mostly a game of kings and queens who command considerable wealth to make this effort yield meaningful results.
For most of us who do not belong to this class or to...
Lucky gamblers;
Market insiders with inside information and influence;
Investment geniuses (real geniuses who can understand exactly what they are doing),
...we are better off doing the following two items:
Ask for a raise at work, or at least for the conditions required to deserve one.
It’s humbling to note that for most of us our main source of wealth generation for our entire lives is our capacity and contribution to work. Most of us will only manage to improve our lives through acquiring better skills and experience. We learn, we work better, we get more experience, we command better pay. We simply have to remember that just as it is the responsibility of our employer to reward us, it is also ours to ask for what we deserve.
Save
Simple, sweet and 100% effective. Instead of taking risks on investments to get potential income from savings.
Option A
- You earn RM100k a year (8k monthly)
- You save 10% = RM10k
- You magically get 20% returns (doubt)
- You earn RM2k at high risk
- You have RM12k in your bank by year end
Option B
- You earn RM100k a year (8k monthly)
- You save 10% = RM10k
- You save extra 2% (RM170 monthly)
- You have RM12,040 in your bank by year end
It is unclear how many of us can make Warren Buffet beating investments like in Option A but I am confident that all of us can handle Option B just fine. For those who choose Option A, you just have to repeat it for a few years to enjoy compounding effects and you should be set for life. Although last I checked, average portfolio returns for Malaysian index funds (before their various complex charges and fees) was about 7.5%.
*Note that some of those charges also apply if the funds lose money.
This article is to serve as a reminder to the average man that saving though boring, is a more reliable path towards collecting wealth. Instead of focusing on amassing wealth, we can benefit from applying ourselves to bettering our quality of life.
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