Digital Dust and Opportunity Cost of doing nothing
"Is your money gathering digital dust?" Kenneth Kwan
Loved it! Was having a chat with Kenneth and the topic of investing our money came up. Its so true eh? In the current low interest rate environment, the interest you receive on your savings will almost be meaningless.
Does that mean we don't save? No! Even if it is just a small amount, save!
You can still invest regularly (make sure you know what you are doing and are aware fo the risks etc), or you could accumulate it over a few months and invest a small lump sum each time.
The point is, do something about it. Often, the biggest loss is not the actual investment loss, but the opportunity cost of not doing anything.
"Opportunity Cost" What do I mean?
An actual cost / loss is when you buy or invest in something, say for $10,000 and sell it for only $8,000. You lost $2,000. That is an actual loss.
If you don't invest that same $10,000, well you willl not lose anything. But there IS an opportunity cost. Because that same $10,000, if invested and grows at 7.2% per year, will double approximately every 10 years. Meaning, in year 10, you will have $20,000. In year 20, it becomes $40,000. In year 30, it becomes $80,000. And that is only at 7.2% return per year.
Yes, if you don't invest it you will not lose money, but you would have FOREGONE THE OPPORTUNITY (not guaranteed obviously) of making the extra $70,000 over the next 30 years.
So which is the greater loss?
Opportunity cost is an abstract concept because we can't "see it". And humans have proven to be more averse to losing money than making it. Be aware of it, because it can be very very costly.
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