There are many different reasons why you should invest. I could talk about the reduction of your purchasing power because of inflation, the huge opportunity you could miss with the compounding interest of your investment, the appreciation power of certain assets over time, the security of having an additional safety net, and many other reasons. But for this article, I would like to talk about something different.
Everyone knows about the danger of investing, as you put your capital at risk, but we don’t often talk about the danger of not investing at all. The general wisdom is to get a job that pays well, buy a house, build a family, and you will live a happy life. The problem is that this approach might not be as safe as everyone thinks.
Let’s take an example and compare the sources of revenue from two different families.
• The first family comprises two people. One works as an employee and has a $50,000 annual salary; the other is a business owner who earns $60,000 per year. In addition, this family has $10,000 in savings, owns a $250,000 apartment that they rent, and regularly invests in the stock market.
• The second family also comprises two people. One is a pilot and has a $100,000 annual salary; the other is a flight attendant who earns $50,000 per year. They own a house, live an expensive lifestyle, have no savings, and don’t invest.
As you can see, the first family has revenue from four different sources. If a problem occurs, such as the business owner falling ill and not being able to work for a while, this family can still rely on their other sources of revenue and assets. In contrast, the second family depends entirely on their salaries, and both incomes are from the aeronautical sector. This situation is not problematic when everything goes well. Unfortunately, if an industry crisis were to happen, such as a new global pandemic, they risk losing their jobs. Based on their current status, which family do you think is in a safer position and will most likely have more revenue in the future? The answer is obvious. Although the first couple earns less money, their revenues are spread, and they regularly save and invest money that they can use in case of emergency. They are, therefore, in a much better position than the second family, who did nothing wrong but followed the widespread norms to have fulfilling jobs that pay well, own a house, and live a happy life.
From this simple example, you can see the advantages of diversified investments and revenue sources. Although I took an extreme case to prove my point, the fact remains that relying entirely on one source of revenue while not investing is very risky. There are indeed risks involved in every type of investment, but people often overlook the fact that there are also significant risks to not investing at all.
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