Investing money is like planting a garden. Your initial investments are your “seed” money – and depending on what you have planted – your investments will ripen at different rates and values.
Me? I grow sunflowers. I like to see a return on my investment quickly, and sometimes they grow to be 9 feet high – of give back more than I expected. Then I dry the heads and replant the seeds.
Stocks are like Sunflowers. Many things will affect the value of stocks day by day, but in the long term they grow more than bonds or savings. On average a stock grows 9.8% a year. Yes, I averaged in the bear market years) So, in 7 years (or if you count inflation – 10 years) my money will double. That means I will have doubled my money by the time I enter the 5th grade. However, stocks are not a guaranteed investment. The year Mommy was born the DOW fell 45% (that is almost half!). So , it is important to plant more than my sunflowers.
I also like Bonds. In their worst year, bonds fell 9%. I get excited knowing that in 12 years my investment will double – (meaning when I enter Jr High), but I am depressed when I am reminded that with inflation this just looks pretty. I won’t have doubles my money with inflation until I exit college, 26 years from now.
Saving money in cash is like planting a Sequoia tree. At a 3% return, it will take 23 years for my money to double. It grows so slowly, and is affected by inflation and interest so strongly that the full purchasing power may never be achieved in my life time and my grandchildren might finally enjoy some return on my investment.
But, I am a kid. I have plenty of time to invest a little in many places. I am also smart enough to know that droughts, monsoon, new technologies, and wars are some of the factors that will affect the price and value of my investment while I am waiting for them to mature. And, I know that no investment is guaranteed – just look at the times the stock market has crashed and sometimes it takes
You have to garden and get in the mix with your money. Manage it, know what it is doing and consult an expert who will explain all of this to you. If you are hoping to grow a healthy mix of investments – know what your goals are. Are you saving for college or a new car? Should you keep everything you buy or pull up a few sunflowers and plant more trees?