Saving vs investing

Warren-letters 2



Some people become confused between the terms savings and investing.
Defensive investments focus on generating regular income, (as opposed to growing in value over time).
Term deposits, Government bonds etc fall into this class.

Growth investments aim to increase in value over time, because their prices can rise and fall significantly.
We would hope this class would deliver higher returns than defensive investments.

The end goal is to grow our wealth of course, but both methods differ in their mind set as well as outcomes and risks.
Sometimes people will also use the expression, we “invested” in a great family car, and its true they have invested their capital.

But this sort of investment is a form of bad debt(unless you have purchased it outright) because its a form of investment where your product is decreasing in value every year.
Bad debts like cars, tv`s, white goods etc..depreciate in value.

Not all debts are equal!

Good debts, like investment properties, increase in value over time.

Defensive investments

A conventional way is to just open a savings account and then depositing a part of your income into it.
The best way we have personally encountered, to “force” us to save our wages was to have our account linked to a building society which automatically deducted a set amount each week from our wages, before we could get our greedy hands on it and spend our money on things we didn’t really need.
This same account in the building society also made it extremely difficult to access any of the money.
There is nothing wrong with this method for initially getting ourselves started on a road to wealth.

Treasury Bonds-These are medium to long-term debt securities that carry an annual rate of interest fixed over the life of the security.
Treasury Indexed Bonds-Interest is paid quarterly, at a fixed rate, on the adjusted face value.

Since the Australian government has never defaulted on payments on bonds they are considered to be a highly secure investment product

Growth Investments

The two most common types of growth investments are shares and property.
With regards to shares, you could swap the word “invest” with the word ” gamble”.
A share of common stock is ownership in a company.

It entitles the holder to a claim on assets as well as a fraction of the profits that the company generates.
Investors are constantly trying to assess the profit that will be left over for shareholders.
This is why stock prices fluctuate.

But, unless you have the knowledge base of someone like Warren can anyone be sure that their investment in stocks will pay off in the long run ?

This is what Buffett said about his investing in(and subsequent takeover) of the company.
“…The dumbest stock I ever bought was–drum roll here–Berkshire Hathaway. And that may require a bit of explanation. It was early in 1962, and I was running a small partnership, about $7 million. They’d call it a hedge fund now.And here was this cheap stock…in a textile company that had been going downhill for years. So it was a huge company originally, and they kept closing one mill after another….”  source

But we did spot one gem of advice from Buffett in his discussion about business in general.

“…You don’t want to buy things that are cheap. You want to buy things that are good. It’s much better to buy something that’s good at a fair price, than something that is cheap at a bargain price.

But luckily you can still purchase a Class A share in Berkshire Hathaway for a measly $255,795.00 USD per share !
Most of the web sites that promote investing in stock..are brokers..
But economic growth is pretty damn good at the moment so shares should reflect that right..??
What does one hundred and two years of data tell us ?

“It is widely believed that economic growth is good for stockholders. However, the cross-country correlation of real stock returns and per capita GDP growth over 1900–2002 is negative. Economic growth occurs from high personal savings rates and increased labor force participation, and from technological change. If increases in capital and labor inputs go into new corporations, these do not boost the present value of dividends on existing corporations. Technological change does not increase profits unless firms have lasting monopolies, a condition that rarely occurs. Countries with high growth potential do not offer good equity investment opportunities unless valuations are low.” source

The amount of knowledge required, the difficulty to “predict” the future and the historical variability in the stock market make it too tenuous as a reliable investment vehicle.
Their are outliers of course, but from our perspective, we are aiming for the highest probability of success combined with the lowest probability of any major financial problems.

Which leaves us with the only viable form of growth investment left to us.

Property Investment.
Their is a reason why some of the richest people on earth, make their wealth through property !
We have a booming population in Australia, one of the strongest economies on earth and a housing crisis, both in new properties and rentals.

Investing wisely, in NEW properties, in the right location and the right time(everything has cycles) with the right team, is the “safest” form of wealth creation in Australia.

But all the information, anecdotes and advise from friends etc can make it complicated.

Thats why you need a team of experts who walk the walk and talk the talk !

Let Ample property Solutions show you, in 90 minutes in the comfort of your own home, the power of wealth creation using property !
You will never regret it !
Contact us TODAY !