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 ,Posted On April 19 , 2021

Posted on April 19 , 2021

Lessons From COVID-19 - Part 6.

In the last blog I explained how my experience with COVID evolved into a vision of reducing the gap between the 99% and the 1% by helping the other 99% become prosperous.

I promised to talk about pocket-book-relevant advice, specifically ‘investing’ as a path to prosperity. Today I’ll make good on that promise, though let me start with a disclaimer.  I am not an investment consultant and I am not giving any advice about how, where and what to invest.  I am simply sharing my own understanding of the practice of investing, based on my individual investment experiences.

To me the smartest way to make decisions is to hear out everyone in the room, and form a method to achieve objectives based on that collected understanding. My experiences should not be taken as gospel, but I hope they’ll be a good data point, a relevant voice in the room.

Lesson –“Investing – the paths to prosperity and poverty” …

Investing

For a long time, I believed that investments were beyond me. Investing was mysterious and occult, a ritual for the rich to maintain their wealth.  It was not until after Grad school, when I started working on Wall Street that I realized investments are a necessary tool for us all to stave off poverty due to inflation.

Inflation is a natural phenomenon, it is a part of everyday life.  Just as our natural terrestrial system has sunshine and wind, our capitalist economic system has inflation. Simply put, it is the increase of prices of goods and services as time goes by, largely due to the presence of more money in the market. In other words a kilo of apples will cost more in a year than it does now. The normal rate of inflation is about 3%.  It varies with time and from place to place.

To put it in personal terms, this means that if you are not earning at least 3% interest on your savings, you are losing money.  Or looking at it another way, if you are not getting a raise of at least 3% you are getting paid less for doing the same job.  Sorry to be the bearer of bad news, but a 2% raise means you’re actually making less money than the year before, since all that money is worth less (can buy fewer apples).  Therefore it is essential that you find a way to increase your income by at least 3% in order to stay away from the path to poverty.

Conversely, there exists a path to prosperity. Though in today’s global economy, the path is more like a multi-lane superhighway with many ramps, each being a different point of entry for different types of investors.  Some join the highway much earlier- professional investors, well on their way to prosperity barring disaster. Some get on the ramp later in life as they start considering their children’s education or their retirement- these are people who may or may not get rich but will very likely not be poor.  Both groups comprise the global 1%.

Then there are those who haven’t even thought about investments, who have no understanding of the path to prosperity beyond the highway’s incessant drone above them. Economically, they live in an underpass. The ramps are either inaccessible or unimaginable, the notion of even having a car is a distant dream. These are the remaining 99%. It does not need to be this way.

Now I realize that most of us want to get rich.  But you can’t get rich if you are poor.  So the first order of business is to make sure you are NOT poor.  If you focus on not being poor, rich will happen by itself.  Although the saying ‘buy low sell high’ is primarily associated with the stock market, it is applicable to all types of transactions and perhaps foundational of any investment decision making process.  What this means in simple terms is that you should get more in return that you put out. So if you are investing your time to work for someone or something and not getting the necessary resources you need to survive, you are on the path to poverty. Keeping the aforementioned inflation in mind is necessary to forming an accurate baseline for what you should be getting in return. 

Yet we often find ourselves in these situations, mostly by sheer chance of where we are born.  However, that doesn’t mean that this cannot be changed.  The hard part is to know how to change this situation.  In my view that’s where education comes in.  Education is to teach people the art of change so that they can learn how to change these situations so that they can switch from the path to path, and fully understand the gravity their decisions will have in shifting their trajectories. In fact one of the reasons, mathematics, specifically, Calculus is so important to me because Calculus is the study of change. Though that is for a future discussion.

Therefore, in our continued quest for reducing the gap between the 1% and the other 99%, the next step is to get off the path to poverty.   This may sound obvious but to do this you must first realize that you are on the path to poverty when what you are earning is less than what you are spending. That’s not an indictment, it’s understandably difficult to separate the forest from the trees when your back is against a wall, but grasping every element of your value is of the utmost importance when evaluating which path you are on. The bigger the gap is between your earning and spending, between your income and the value you need to maintain your life, the faster you are hurtling towards poverty.  

For my part, in the subsequent weekly posts I will talk about various types of investments, how to recognize which ones lead to poverty and which ones to prosperity and most importantly how to make sure that your earning is greater than your spending so that you have disposable income to invest.

 

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