Spending vs. Saving vs. Investing

“Poor people spend their money,

Middle class people spend their money,

Wealthy people invest their money”

Charlie Munger, Berkshire Hathaway

Now, if you read this it’s probably redundant to explain who Charlie Munger is or which company Berkshire Hathaway (BH).

Ever heard of some rich old guy from Omaha, Nebreska?

Right. Warren Buffet (WB).

Charlie Munger is Warren right hand and have been for a lifetime, which – imho – speaks volumes to his career as an esteemed investor.

Berkshire Hathaway and Warren Buffet is known and certainly well respected all over the world, though some newer profiles, might find some of BH’s investments a bit old school.

It’s no secret that one of WB’s “secrets” is to only invest in your “circles of competence”.

In short: only invest in business you understand.

Now, that might sound pretty obvious in your (the readers) eyes, but it is in fact a lot more difficult that it sounds. There’s a reason why most (retail) investors end up in the losing end of their investments.

Before this turns into an “appraisal” of WB, CM and BH, which is not the point, the motte does hold a “truth”, that you don’t become rich or wealthy merely by saving all your money.

Why?

Inflation. This will eat up your money over the years unless you are able to get a higher interest from you e.g. bank to cover the yearly inflation around 2-3%.

Salary. Most people depend on a/their income each month to take care of bills, put food on the table and in general make ends meet. This (often) leaves a small space for saving or investing.

Risk-Reward. If you put all your savings into your savings account (or similar), sure you reduce your “Risk Of Ruin” (ROR), but at the same time, there’s no real upside or option for reward.

If you wan’t a chance of double your money many folds, you need an “asset” that offers that perspective, but ironically, a greater potential for reward, also comes with a greater chance of risk.

Again, you can’t win, if you always focus on not losing – your mindset is the key.

A few examples…

Bitcoin (BTC). Most people have heard about Bitcoin today, perhaps not understanding blockchain fully, but imagine you bought BTC below 100$ a coin. Looking at todays price (almost 50.000%), you would have made a fortune from that investment – and needless to say, that the price could have plummet and left you with zero. That’s called “taking a chance”.

Real Estate. Many people obviously take pride and comfort in owning their own home/ house.

But some of the same people also believe, that “bricks” are money in the bank – it’s not.

Remember the subprime crisis in 2009, caused by banks being completely irresponsible and hand out “loans” to (pretty much) anyone applying, though the banks knew most wouldn’t be able to meet the financial obligations later on.

Commodities. Sure we still use oil, soya beans, coffee, cocoa and many more commodities, which can be traded on the open exchanges. But again, there has been years where the harvest for some reason (e.g. poor weather) didn’t went well.

Now, to add a few personal comment to this, first things first:

There are happenings. /events outside you control, and only few things that are directly under your ‘ control’.

Focus on the things you can control and calculate your risk-reward from the information available any given time. Things chance, so does calculations and odds.

Noone gains from 100% of their investments, but the beauty is that you don’t need to. It’s not a competition where you need 10 out of 10 to win. It’s all about your bottom line at the end of the day, month, year etc.

There are so many tools, forums and platforms out there today and trading can be done from any of your devices.

If you would like to get started trading yourself, feel free to reach out – it costs nothing to ask.

Good luck with your investments!

*** Nothing above is to be taken as direct financial advice – I am not a financial advisor ***