The cost of not investing
I’m somewhat of a nervous investor, which means that in the past I pretty much didn’t invest. Oh, I had an IRA and put money into 401(k)s, but that was about it. When I did finally get money that I could have invested elsewhere, I felt better having my money sit in a savings account where I thought it was relatively “safe”. But I’ve since realized that feeling like my money is safe and having my money actually be safe (meaning retain value or even gain in value) are two different things.
Because unless your savings account is earning more than inflation, you’re losing money.
Over time, your money will buy less & less, which means that if you start with $100,000 in the bank earning one percent interest, each year its useful value actually declines. Assuming a 3.1% inflation rate, that means that after 10 years your $100,000 would probably buy only about $81,401 worth of things. Add in the effects of taxes, and the picture gets even more bleak. (Thank you to dinkytown’s savings, taxes, and inflation calculator for the estimate.)
You’re also losing the opportunity to increase the amount of money you have by investing.
Because I still feel nervous about investing, I tell myself that my choices are pretty much a guaranteed loss (by not investing) or the possibility of both loss or gain (by investing). Put that way, the choice is much easier.