The truth: why save and invest
The logic is simple and clear:
– if you consume all your income, you run the risk of not being able to face any future difficulties and unforeseen events (this is why, since the dawn of man, you save money: you put hay in the farmhouse, for hard times) ;
– if, on the other hand, you save, but don't invest correctly, you risk frustrating the effort, in particular due to the erosion of purchasing power due to inflation – now we get there.
Many savers do not invest due to mistrust and fear: the risk of investments can be frightening, especially if you are not familiar with the financial markets. But are you sure that not investing means not taking risks? Perhaps you are forgetting a small detail… does the word “inflation” mean anything to you? Of course, today it is at very low levels (in September 2016, in Italy, it is +0,1%), but this situation will not last forever. And the increase in prices has an incredible eroding power on the savings you think are safe "under the mattress". Look at the following graph, with data on the average inflation of the main countries from 1900 to 2014: they correspond to the annual loss of purchasing power. So, said differently, an investment "under the mattress" in Italy from 1900 to 2014 yielded an average of -8,2% in real terms each year. That is, year after year, it was impossible to buy 8,2% of the goods and services bought the previous year.
Italians invest little and badly
It is said that Italians are a people of savers. However, for various reasons – among which are distrust of banks and finance, laziness and poor financial skills (source: GFK, July 2016) – a good portion of these savings is left to “mould under the mattress ”, basically on unprofitable bank current accounts. Or parked in savings products with dubious benefits. In fact, according to the latest CONSOB survey on Italian household savings, more than half of the money invested by Italians is in bank deposit accounts and postal savings accounts. Furthermore, according to Bank of Italy estimates, around 30% of savings are not invested at all.
The erosive power of inflation
So, historically inflation has made its presence felt, "eating up" a good portion of the purchasing power of Italians. Remaining on the case of Italy, in 114 years the impoverishment is such that, given 100 capital at the beginning of 1900, it has been eroded by inflation until it is worth less than 1 cent. If, on the other hand, you had invested a capital of 100 in an international balanced portfolio, at the end of 2014 you would have collected more than 14 million in wealth (equal to 2.900 in real terms – ie the purchasing power has grown 29 times). Quite a difference, oh yes. The reason? In real terms (that is, eliminating the erosive effect of inflation), since 1900 world equities have on average returned 4,7% per year, a basket of global bonds 1,3% per year; so a balanced 50-50 yielded 3% per annum real. The compound capitalization law then did the rest.
The solution: invest for the long term
Investing in the medium/long term has historically been fruitful: the risks taken by investors have paid off. And if it doesn't radically change the structure of the world economy, it is likely that it will continue to be like this (between the ups and downs of the financial markets). There are investments for all budgets, small and large. Transparent, and inexpensive. You can do everything online. You can invest a little at a time. So: no excuses, the ball is yours, it's up to you to take care of your future.
