“Why should I invest?” is the first installment of my “Rethink lnvesting” series, in which I hope to explore some fundamental questions you should consider when you decide what to do with your savings.
Many people my age have become wary of investing. Before we got a handle of what it means to invest for the long-term right at the start of our professional careers, we faced a major market crash anci saw our meagre savings iost much of its original value. Some might have even lost employment as the market rebounded, and have just regained the capacity to save for the long-term again. Given all the news we hear about the irresponsible behaviour on Wall Street, sometimes we wonder why we can’t just stuff all our valuables under our mattress and be done with it.
Of course you can find many answers to this question. You may know that cash eventually loses its value due to inflation, (think how much it cost to buy a can of coke 30 years ago versus today) and want to make sure your savings grow to at least provide your current lifestyle. You may also have done a quick calculation and found that if you don’t make a return on your monthly savings, you will never save enough for retirement. On the flip side, you may want to retire early and making money from investments seems like the quickest way to get you there. Or maybe you hear so much about the double digit returns in the news that you feel pressured or enticed into putting your savings in the market, without fully understanding what you’re investing in.
All these answers are relevant, but to me also seem passive aggressive. They are telling you if you don’t do something, you are going to lose out. No wonder people have such ambiguous feelings toward investing. ln the back of their minds they seem to know they should be investing, but they don’t completely have a rationale for it, while the so called experts keep telling them all the negatives if they don’t invest, or invest properly. lsn’t there a more positive reason for why we should be investing, and how it’s good for us?
A few years ago toward the end of my studies in financial planning, I came across a parable that speaks to me about why investing is not just important, but also a mandate for us as members in a community. lt helped me cross over from viewing investing as making unearned money to seeing prudent investing as a responsibility. You might be familiar with the parable, which can be found both in the Book of Matthew and Book of Luke in the New Testament. The details are slightly different in each book, but I believe the general idea is the same.
To paraphrase the story, a master with wealth and power gave three servants some seed money before he went out of town. When he came back, each servant showed the master what they had done with the money. The first two put the money to work and made some more, and the master praised them for being trustworthy. However, the third one told the master he had kept the money safe (under the mattress?) instead of doing something with it because he was afraid the master would be mad if he had incurred a loss. The master was furious and scolded the servant for not even depositing the money with a bank so he can earn some interest, and took the money from the third servant to the first servant, who made the most profit. Jesus’ comment at the end of the story was,
“l tell you that to everyone who has, more will be given, but as for the one who has nothing, even what they have will be taken away.”
That sounds like a harsh sentence to poor people. However, we seem to see this dynamic plays out more and more in the widening income inequality in the world. People who put their capital to work eventually receive more in return than those who either have no capital to begin with or choose to stash their capital away. Not to fall back to the scary talk of why you should invest to prevent yourself from becoming like the third servant, I want to focus on what the first two servants do right.
I like to think about investing as two simple concepts: increasing the value of what you own, and generating income from what you own. Doing either of these two makes you share your resources with other people. When you invest in the stock market, you are a share holder of the companies you invested in, which need your money in order to operate and grow the business. When you buy an investment property for collecting rent, you are sharing your asset so people who can’t afford to buy a house can still have a place to live. When you buy a government bond, you are lending your money to the government to build roads, serve low-income people, and inspect for food safety. Even when you simply deposit your savings in a bank account, it is in turn lent out to small businesses so they can start from the ground up.
When you invest, you are embracing your community and this world. And the financial return is simply the reward you get for willing to part with your resources temporarily and take a chance on other people. I think this is the reason why the master in the parable praises the first two servants as trustworthy. They invested what they received in others. Even though they had different levels of return, they are both trustworthy. I would imagine even if one of them lost money from the investment, he would not get scolded like the third servant.
I believe eventually investing for the future is a spiritual necessity. Yes we might lose some of our hard earned money on others’ failure in the process, but in the long run we are counting on the human race to advance our collective welfare, while keeping an optimism that we will continue to find new frontiers to break. lf we know this is part of why we invest, we will not be bogged down by the rollercoaster ride of short-term market performance and the desire to chase after returns to make more money. Our investment is also made more meaningful not just for our financial security, but also for the progress of our society.
How do you think about your investments? Why do you invest? What are the things that prevent you from making an investment for the future? Share your thoughts with me below.