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Save vs Invest

suttichart.denpruektham
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6/4/2013 2:07:36 PM
Posted: 3 years ago
Do you think it is good idea to invest your money in stock, gold or other value creating commodity, and risk it being crashed down during economic crisis or save your money in cash, face a certain depreciation of your money value, marked by inflation and only invest when the crisis hit.

There is almost a certain possibility that crisis will hit any economy at every 10 years, so it is perfectly possible to simply keep your money for the day of reckoning. On the other hand, depend on the level of inflation in your country, keeping money for a decade can be very devastating (if inflation is 3 percent as in my country, over half of the original value will be gone by the time the crisis hit). There is also a risk that your choice of investment can be wrong and the company you invest is simply fallen apart, or commodity turn worthless for some unforeseen factors. On the contrary a success investment can made even more than 100 percent gain in some case.

Investing in stock and other commodity can be mush more lucrative, assuming that you are making a sound financial judgement. You will probably keep and even gain more money when the economy is in a good condition, and exist sometime prior to the crisis can be far more profitable than not invest at all. On the other hand the risk of unexpected event must be faced everyday rather than once a decade, which make it more risky.

Anyway this statement is simply guide for those who are not familiar with personal financing and retirement plan. If you have good economic knowledge feel free to ignore this comment and state up your mind.
wrichcirw
Posts: 11,196
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6/4/2013 4:19:11 PM
Posted: 3 years ago
At 6/4/2013 2:07:36 PM, suttichart.denpruektham wrote:
Do you think it is good idea to invest your money in stock, gold or other value creating commodity, and risk it being crashed down during economic crisis or save your money in cash, face a certain depreciation of your money value, marked by inflation and only invest when the crisis hit.

There is almost a certain possibility that crisis will hit any economy at every 10 years, so it is perfectly possible to simply keep your money for the day of reckoning. On the other hand, depend on the level of inflation in your country, keeping money for a decade can be very devastating (if inflation is 3 percent as in my country, over half of the original value will be gone by the time the crisis hit). There is also a risk that your choice of investment can be wrong and the company you invest is simply fallen apart, or commodity turn worthless for some unforeseen factors. On the contrary a success investment can made even more than 100 percent gain in some case.

Investing in stock and other commodity can be mush more lucrative, assuming that you are making a sound financial judgement. You will probably keep and even gain more money when the economy is in a good condition, and exist sometime prior to the crisis can be far more profitable than not invest at all. On the other hand the risk of unexpected event must be faced everyday rather than once a decade, which make it more risky.

Anyway this statement is simply guide for those who are not familiar with personal financing and retirement plan. If you have good economic knowledge feel free to ignore this comment and state up your mind.

This is a somewhat difficult question to answer because exactly what constitutes saving and what constitutes investing differs wildly from person to person.

For example, for you, saving = cash. For most people, this is not the case, savings would be deposited in an interest-bearing account, and is thus not exactly cash. However, interest-bearing accounts do not fit your definition of investing, even though banks use these deposits as a reserve for their lending business, which by definition is investing. Therefore, interest-bearing accounts are investments, one with very little risk because the bank acts as an intermediary that determines adequate risk in how this deposited capital is invested.

Your question becomes even more difficult to answer when one asks about primary residence - is the home you live in, if you own it, savings or investment?

Perhaps the best way to frame your question is that savings can be looked upon as a defensive measure, something that is there in case you need to fall upon it, kind of like an insurance plan. I think most people, were they able to choose, would put home, transportation, and enough money to live off of for however much time they thought was appropriate as a good savings plan.

Anything and everything else IMHO should be invested.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
sadolite
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6/5/2013 7:51:46 PM
Posted: 3 years ago
"Save vs Invest"

It isn't a "VS" relationship it is "save + invest = wealth creation"
It's not your views that divide us, it's what you think my views should be that divides us.

If you think I will give up my rights and forsake social etiquette to make you "FEEL" better you are sadly mistaken

If liberal democrats would just stop shooting people gun violence would drop by 90%
darkkermit
Posts: 11,204
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6/5/2013 8:08:23 PM
Posted: 3 years ago
that depends on your risk tolerance. Although you can hedge your fund is instead through diversification. For example if you add both commodities + stock in your portfolio, this reduces risk since when there's a stock market crash, then the price of gold goes up.

Anothing thing you can do is invest in bonds instead of the stock market. Bonds have a lower risk than stocks since bondholders get first priority in paying back debt. Any money that is left over is given to stockholders.

But remember, not even putting everything in your savings isn't 100% risk-free since money can depreciate or even lead to hyperinflation.
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suttichart.denpruektham
Posts: 1,115
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6/7/2013 5:31:20 AM
Posted: 3 years ago
At 6/4/2013 4:19:11 PM, wrichcirw wrote:
At 6/4/2013 2:07:36 PM, suttichart.denpruektham wrote:
Do you think it is good idea to invest your money in stock, gold or other value creating commodity, and risk it being crashed down during economic crisis or save your money in cash, face a certain depreciation of your money value, marked by inflation and only invest when the crisis hit.

There is almost a certain possibility that crisis will hit any economy at every 10 years, so it is perfectly possible to simply keep your money for the day of reckoning. On the other hand, depend on the level of inflation in your country, keeping money for a decade can be very devastating (if inflation is 3 percent as in my country, over half of the original value will be gone by the time the crisis hit). There is also a risk that your choice of investment can be wrong and the company you invest is simply fallen apart, or commodity turn worthless for some unforeseen factors. On the contrary a success investment can made even more than 100 percent gain in some case.

Investing in stock and other commodity can be mush more lucrative, assuming that you are making a sound financial judgement. You will probably keep and even gain more money when the economy is in a good condition, and exist sometime prior to the crisis can be far more profitable than not invest at all. On the other hand the risk of unexpected event must be faced everyday rather than once a decade, which make it more risky.

Anyway this statement is simply guide for those who are not familiar with personal financing and retirement plan. If you have good economic knowledge feel free to ignore this comment and state up your mind.

This is a somewhat difficult question to answer because exactly what constitutes saving and what constitutes investing differs wildly from person to person.

For example, for you, saving = cash. For most people, this is not the case, savings would be deposited in an interest-bearing account, and is thus not exactly cash. However, interest-bearing accounts do not fit your definition of investing, even though banks use these deposits as a reserve for their lending business, which by definition is investing. Therefore, interest-bearing accounts are investments, one with very little risk because the bank acts as an intermediary that determines adequate risk in how this deposited capital is invested.

Your question becomes even more difficult to answer when one asks about primary residence - is the home you live in, if you own it, savings or investment?

Perhaps the best way to frame your question is that savings can be looked upon as a defensive measure, something that is there in case you need to fall upon it, kind of like an insurance plan. I think most people, were they able to choose, would put home, transportation, and enough money to live off of for however much time they thought was appropriate as a good savings plan.

Anything and everything else IMHO should be invested.

I am willing to consider a saving account as a kind of saving, as oppose to investment in value creating commodity. You're right risk of unknown will always exist (because it is.. ..unknown, so there is no way to completely prevent). The point is there are a significant different in unknown factor between cash or banking account and commodity. My grandmother use to do business with Laos, she never trust the bank so she always keep Laos currency in its physical form until, I think when the communist takeover, not so sure but the Laos government decide to deflate its currency by massively introduced the newly printed money. All her saving is effectively turn in to garbage, so even hard currency have a risk but it have to be something this big that some effect can be felt. Stock, gold, platinum, polonium, jewelry, on the other hand will reflect its effect as part of its value creation activity.

So the real point is, what is your average willingness to take risk, would you bet with the significant fluctuation in economic or government policy, or place it on corporation of various size or industries of value.
wrichcirw
Posts: 11,196
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6/7/2013 1:05:28 PM
Posted: 3 years ago
At 6/7/2013 5:31:20 AM, suttichart.denpruektham wrote:
At 6/4/2013 4:19:11 PM, wrichcirw wrote:

I am willing to consider a saving account as a kind of saving, as oppose to investment in value creating commodity. You're right risk of unknown will always exist (because it is.. ..unknown, so there is no way to completely prevent). The point is there are a significant different in unknown factor between cash or banking account and commodity. My grandmother use to do business with Laos, she never trust the bank so she always keep Laos currency in its physical form until, I think when the communist takeover, not so sure but the Laos government decide to deflate its currency by massively introduced the newly printed money. All her saving is effectively turn in to garbage, so even hard currency have a risk but it have to be something this big that some effect can be felt. Stock, gold, platinum, polonium, jewelry, on the other hand will reflect its effect as part of its value creation activity.

So the real point is, what is your average willingness to take risk, would you bet with the significant fluctuation in economic or government policy, or place it on corporation of various size or industries of value.

Just a slight but significant semantics correction - I think you meant "devalue its currency" in the bolded, or "inflate its currency" which means the same thing. If you "deflate" a currency, the currency actually rises in value relative to other goods, because there is less of that currency in circulation. Don't worry...only someone with knowledge in economics in English would catch something like that lol - I think most people simply do not know the difference.

You make some really good points, especially in regards to the risk of "risk-less" forms of holding wealth, like cash. We're pretty lucky in America. Our bank deposits are federally insured up to a significant amount, and the dollar is easily seen as about as close as you can get to an actual "risk-less" currency.

Regarding your grandmother's Laotian business, my question for you would be "how did the actual business fare during inflation"? I've read a lot of analysis that corroborates your point about how productive assets, particularly business equity, tend to ride out monetary fluctuations better than any other form of investment. This makes sense as businesses typically pass on the inflation to their customers, and so nominal profits would rise during inflation and fall during deflation. Supposedly, under this logic, your grandmother's business's rate of return would have been the same even if the Laotian government devalued precipitously. Any cash associated with the business would take a hit, but any debt associated with the business would take a as well. Any goods/commodities associated with the business would be subject to global markets, and so if Laos devalues, then the value of those goods/commodities would increase relative to Laotian currency.

Such things like unstable currency typically are labeled by international banks as "country risk", and is of course extremely important to consider whenever international business is conducted.

---

Hard metals are hard to evaluate because no one in authority dares to talk about them - it would be a sign that central banks have lost control of the fiat currency. It's important to realize though that ONLY GOLD counts as a monetary metal...all other metals have a much more primary industrial usage, and none of them are held by central banks. Other metals would thus be like any other non-perishable commodity, like oil.

Gold IMHO would then have to be evaluated on the merits of a reserve currency, i.e. insurance on fiat. You'd have to determine what is the real "price of money" or essentially what money should, or needs, to be priced at in order for the country to remain solvent. If the country becomes insolvent, then the reserve would kick in. Debts would be handled through the reserve, as the currency at the time of insolvency has become wholly discredited. For smaller countries, their reserves would be at the mercy of global markets, but for large countries like America, the markets would be at the mercy of American policy. This is what it means to hold "dollar hegemony".
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
DanT
Posts: 5,693
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6/7/2013 3:20:42 PM
Posted: 3 years ago
That is not how it works. Saving and investing work together. The monetary demand = k * nT.... K being capital and nT being nominal transactions.

Y = T / v... T being the volume of transactions, Y being aggregate output, and v being the constant of proportionality. In other words, Y and T are used interchangeably.

Y=f(K, L)... in other words, the aggregate output is a function of Physical capital and labor.

Investing helps increase the capacity of firms to convert capital into goods and services. Investing allows firms to expand their facilities and hire more employees.

Saving allows for the accumulation of capital, which is required for future production.

More specifically Y = C + I + G + NX
In other words, the aggregate output = consumption + investments + Government spending + Net Exports

So clearly investing and saving both increase the economic output.

While imports decrease the net exports, and therefore the short term output, it increases capital, and therefore increases the long term output.

The National Savings = I = Y - C - G, because it is assumed that the wealth not spent will be invested.

But I think I understand your real question, which is should people invest in stock or bonds, or should people invest in stock or save their money. High interest rates mean low prices, and low interest rates mean high prices. When the interest rate is high bonds are preferable to stock, and when interest rates are low stocks are preferable to bonds.

This is because the Bond Supply = the Monetary Demand, and the Bond Demand = the Monetary Supply. Thus high interest rates mean low bond prices with higher yields. The high interest rates also deter borrowing money, and encourage savings.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
DanT
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6/7/2013 3:37:20 PM
Posted: 3 years ago
At 6/5/2013 8:08:23 PM, darkkermit wrote:
that depends on your risk tolerance. Although you can hedge your fund is instead through diversification. For example if you add both commodities + stock in your portfolio, this reduces risk since when there's a stock market crash, then the price of gold goes up.

Yeah, risk tolerance is a biggy when investing. The greater the risk the greater the pay off. A bad market produces the greatest return for the lowest prices, but the risk is far greater. Those who can't afford to lose their money, should make more conservative investments.
Anothing thing you can do is invest in bonds instead of the stock market. Bonds have a lower risk than stocks since bondholders get first priority in paying back debt. Any money that is left over is given to stockholders.

Stocks are preferable to bonds when the interest rate is low. The balance of my trust fund is invested in municipal bonds, and I lose money every month because the management fee is far greater than the yield of the bonds. This is mostly due to the FED keeping interest rates artificially low.
But remember, not even putting everything in your savings isn't 100% risk-free since money can depreciate or even lead to hyperinflation.

Investing abroad has the same risks. Changes in the exchange rate can effect the return.
"Chemical weapons are no different than any other types of weapons."~Lordknukle
suttichart.denpruektham
Posts: 1,115
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6/8/2013 4:38:53 AM
Posted: 3 years ago
At 6/7/2013 1:05:28 PM, wrichcirw wrote:
At 6/7/2013 5:31:20 AM, suttichart.denpruektham wrote:
At 6/4/2013 4:19:11 PM, wrichcirw wrote:

I am willing to consider a saving account as a kind of saving, as oppose to investment in value creating commodity. You're right risk of unknown will always exist (because it is.. ..unknown, so there is no way to completely prevent). The point is there are a significant different in unknown factor between cash or banking account and commodity. My grandmother use to do business with Laos, she never trust the bank so she always keep Laos currency in its physical form until, I think when the communist takeover, not so sure but the Laos government decide to deflate its currency by massively introduced the newly printed money. All her saving is effectively turn in to garbage, so even hard currency have a risk but it have to be something this big that some effect can be felt. Stock, gold, platinum, polonium, jewelry, on the other hand will reflect its effect as part of its value creation activity.

So the real point is, what is your average willingness to take risk, would you bet with the significant fluctuation in economic or government policy, or place it on corporation of various size or industries of value.

Just a slight but significant semantics correction - I think you meant "devalue its currency" in the bolded, or "inflate its currency" which means the same thing. If you "deflate" a currency, the currency actually rises in value relative to other goods, because there is less of that currency in circulation. Don't worry...only someone with knowledge in economics in English would catch something like that lol - I think most people simply do not know the difference.
"dollar hegemony".

mistyping, sorry and thanks to show off. It was pretty late when I type this so my head is a little fussy :P
suttichart.denpruektham
Posts: 1,115
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6/8/2013 4:59:55 AM
Posted: 3 years ago
Regarding your grandmother's Laotian business, my question for you would be "how did the actual business fare during inflation"? I've read a lot of analysis that corroborates your point about how productive assets, particularly business equity, tend to ride out monetary fluctuations better than any other form of investment. This makes sense as businesses typically pass on the inflation to their customers, and so nominal profits would rise during inflation and fall during deflation. Supposedly, under this logic, your grandmother's business's rate of return would have been the same even if the Laotian government devalued precipitously. Any cash associated with the business would take a hit, but any debt associated with the business would take a as well. Any goods/commodities associated with the business would be subject to global markets, and so if Laos devalues, then the value of those goods/commodities would increase relative to Laotian currency.

Well she is quite a distant relative of mine so, I do not met with her so often (as in she rest is her house near Laos border while I am in Bangkok so meeting is not very convenient). All I know is that she didn't continue her business with the Laos so I am assume that it is either no longer possible to do business across Mekong (perhaps due to cold war), or that the event came in the later stage of her life where she was already retired with her saving. In any case she had been devastated for a few years before finally moved on. Don't even know if that means "back to the labor again" or something else but her current house look decent and quite big (as in far from poverty but certainly not decent in your traditional sense) so I assumed that she managed to raise money somehow.

Hard metals are hard to evaluate because no one in authority dares to talk about them - it would be a sign that central banks have lost control of the fiat currency. It's important to realize though that ONLY GOLD counts as a monetary metal...all other metals have a much more primary industrial usage, and none of them are held by central banks. Other metals would thus be like any other non-perishable commodity, like oil.


That's exactly why it is selected as an opposite alternative in saving currency. I consider gold as it is priced today, more of a fluctuating asset rather than stable currency. Gold reflect the function of gold-related industry such as jewelry or electrical component as well as the greed and fear of people who invest their money in stock. Thus is not exactly a form of saving and is not as liquid as those of the real currency such as coin, cheque, or bank account. So, at least for me, it is more of a stable form of oil or hard metal, rather than fluctuating currency.