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Long Term Saving Versus The Forex |
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Submitted by Sherie Reuter
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Long term savings plans will often be a very sound investment as we will see in this article.
Although Forex can make you much more in a smaller amount of time – but there is more risk attached.
Our American economy is a free economy, and it operates on the principle that if we leave the factors of production alone, without government interference (and by factors of production we mean land, labor and capital) so long as the game is played fairly and honestly, those factors will gravitate to their most economic and beneficial use. This they will do by being attracted to those places in which they are worth the most, this worth being reflected in rate of return. The places that need them the most pay the highest return.
For the American economy to operate, each investor must seek the highest return on his capital obtainable consistent with risk.
This is not only the justifying theory behind rate of return. It explains why certain industries need money and can pay a good return
The individual usually needs little urging to be converted to the doctrine that if he can get 10% on his money rather than 6% with the same degree of risk he should do that. This article attempts to show him the opportunities to place his money in higher yield investments. But first it might be well to explain just how significant the rate of return on your money is:
A short time ago our very close friends invested $1000 in a promissory note which yields 12% per year—1% per month payable monthly.
Both the husband and wife work, the husband in the government and the wife as a pharmacist. It is their desire that before too long the wife cease work and retire permanently. But they are used to getting along on two salaries, not just one, and the retirement of one of the couple will cut the family income materially. Since the children are grown and out on their own they feel that they can save, after taxes are paid, $200 per month.
This will come out of the wife's income. She has not saved this much to date, mainly because there did not seem to be any great motive for saving, and she seems to like to do a good deal of shopping in the department stores. So a forecast of her savings of $200 a month was drawn up in order that she might have the facts at hand on which she could base a decision as to whether she should attempt to save $200 every month or not. This is how the forecast works out:
On January 1, 1961 she invested her first money—$1,000—and at the end of the first month her interest check on this $1,000 was $10 (1% per month). She did not spend this income but let it stay in the account in order to become capital and thus increase the earnings base. But at the end of January she put in her first periodic monthly savings—$200, so that at the end of January her original capital in the account was $1,000, the interest was $10 and the monthly savings were $200—$1,210 in all. The interest on this total capital during February was.
At the end of the first year she has put in a total of $3,400, but the interest has made this total investment grow to $3,662.
In the normal course of her business career her income will go up slightly each year as she progresses in her job, but she probably will be able to save no more as these increases take place because she must pay taxes on her interest, whether she receives it and spends it or just lets it remain in her account to increase her capital.
By January 1, 1980, when she retires from business at age 63, her capital amounts to $108,476 on her total savings of $15,400. Her monthly interest check amounts to over $1,000, and this is in addition to her pension from her pharmacist's job and her husband's pension from the government
Is all this calculation fanciful? It may be, but I personally many people have had funds invested in this particular company for five years, and the only thing that hap pens is that the company grows, gets sounder and earns more money each year. Eventually they will not pay 12% per year in all probability. Then it will be necessary to find another similar investment.
We might further define the type investment we are talking about as high yield, fixed dollar obligations. The "obligation" part of the definition means that someone or some organization has an obligation to repay the money invested.
The "fixed dollar" part means that there is an obligation to repay a fixed number of dollars. While oil wells, tung groves and citrus groves may be excellent investments and return fine profits, there is no obligation on the part of anyone to repay any fixed number of dollars.
The Forex can make you even much more in just shorter time, but you could also lose a lot so it is a matter of making a choice.
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