“Maconomics” is a weekly series on REVOLT TV, where Wall Street’s premier rapper Ro$$ Mac shares tips about making your money work for you for a change. Catch the insightful advice on it and start watching your pockets grow.
On this week’s episode of “Maconomics,” Ro$$ Mac takes the fear out of what it means to invest by breaking down its importance and shares the simplest way to make it happen.
For those ready to get to the big bag, setting aside investment money is an act that will ultimately build generational wealth. Additionally, smart investing will ensure that the value of money sitting in the bank today will translate to a nice amount of bread a decade or more.
There are many ways to invest and with all the information available, to be honest, the idea of it can get a tad bit intimidating. Not only that, the jump to investing in something such as stocks that results in money being lost due to a lack of understanding can compound the frustration behind it and can get discouraging if you’re just starting out.
To subdue those fears, here are five takeaways about the importance of investing from this week’s episode.
1. On understanding the impact of inflation
Before investing, it’s important to understand the concept of inflation, and how it affects you as a consumer as well as an investor.
As Mac explains, “Inflation is the increase in the prices of goods and services, and the fall of purchasing power of your money.” This means the value of one dollar twenty years ago is not the same as it is today, nor is the price of a Starbucks coffee or the price of gas at the pump.
The Federal Reserve is the entity that monitors inflation in the United States and there are a few reasons why inflation may occur. One way it happens is when the cost to make a certain product increases while the price of the actual product goes up. This is known as cost-pull inflation. When there is a high demand for a product and not enough product, so the prices of the item or service increases, it is called demand-pull inflation.
As an investor, inflation becomes beneficial if the assets invested in are living in a market affected by inflation. Otherwise, it sucks for the average consumer.
2. On why you need more than a bank account
“On average, most bank account savings rates, they gon’ start out giving you .03 percent and the reason that’s not enough is because you’re technically losing money just by leaving your money in a bank account because of inflation,” Mac reveals.
The money in your account is losing value every second it just sits there and the .03 percent savings rates most banks have are not going to get you what you need to offset the effects of inflation.
According to Kiplinger, the rate of inflation is forecast to stabilize at two percent in 2020 and the small percentage of interest earned with an interest-bearing savings account is not enough to match.
3. Type of investment products
As the old adage says, it takes money to make money and Mac recommends investing in a bank product to help offset the effects of inflation as a strategy.
Stocks, bonds, mutual funds, and exchange-traded funds (ETFs) are a few of the investment products many banks offer.
Stocks are the most popular, while bonds and mutual funds are also great options to choose when thinking about the future. ETFs are a combination of stocks, bonds and commodities, which can diversify your portfolio.
4. Why Warren Buffet swears by index funds
For longtime wealth, one of the most successful investors in the world Warren Buffet, suggests an index fund.
“An index fund is a passive investment, meaning you don’t have to do much at all, that owns all the stocks of a particular index,” Mac explains and it’s one of the simplest ways to make money while sleeping.
As Mr. Buffett recommends, a very low-cost index fund over the course of ten years will do better than ninety percent of those who invested at the same time, earning more money in the long run. If you have an individual retirement account (IRA) or 401(k) account, you already invest in an index fund.
For beginning investors who may not have the time to pick out individual stocks to invest in, an index fund is a way to go. Not to mention, it’s tax-efficient.
5. Types of index funds and where to invest in them
The two most popular indices are the Standard & Poor’s 500 Index, also known as the S&P 500, which owns 500 large companies such as Google and Apple, and the Standard & Poor’s Dow Jones.
To get in on the index fund fun, first, do some research on brokerage companies such as Ameritrade or E-Trade, and then choose one that matches your needs.
Next, pick which index you want to invest in. The Vanguard 500 Index Fund is one of the more popular alternates to the S&P 500 and Dow Jones. Other indexes include the Schwab S&P 500 Index Fund, Fidelity 500 Index Fund and T. Rowe Price Equity Index 500 Fund. All of these indexes represent various industries across the country, such as technology and health.
Then, as Buffet suggests, invest the absolute minimum. The Vanguard 500 Index Fund and T. Rowe Price Equity Index 500 Fund both have a minimum amount you can invest, whereas the Schwab S&P 500 Index Fund and Fidelity 500 Index Fund require no minimum.
Lastly, sit back and let the money you invested for future lavish living in retirement grow without lifting a finger.