A savings account is not a good idea to save for the long-term future. A savings account is subject to banking fees, interest rates, and inflation, which always result in a loss in value. This is the fundamental difference between cash (savings account) and capital (stocks). One of Warren Buffett’s most famous quotes is “Cash is the worst investment one can make.” That is because inflation always devalues cash.
Investing in good companies, especially when the markets are down, is interesting. There are many good companies who provide essential services and products whose stock prices keep up with inflation. Telecommunication, insurance, and companies that make dairy products are 3 good examples. Even if your telephone service, insurance premium, or favorite cheese manufacturer increase their prices with inflation, you will still buy their products and services. That, in turn, means the company will earn more, and their stock price will move with inflation too.
Warren Buffett has often been quoted as saying, “Be greedy when others are fearful and be fearful when others are greedy.” When stock prices are high, everyone wants to buy, but that is the most foolish time to invest. The stock prices are already high. However, when the stock market is in decline, most people want to sell because they want to cut their losses, this is an equally foolish thing to do.
It takes a lot of psychological patience and perseverance to go against the tide and buy when stocks are low and sell when stocks prices are high.
Currently, we are in position where stock prices are declining after more than 10 years of increasing markets. Now is an optimal time to put together a portfolio of companies which are interesting for you. The most important prerequisite for including companies in your portfolio is to know what a company’s products and services are, optimally, as a customer. Adding a company to your portfolio from hearsay is pure speculation and is risky and dangerous.
With yeekatee, it is fun to get to know “your” favorite companies, learn more about them, and find all the information you need to make an informed decision on what to buy and what to avoid.
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Written by Therese Faessler, Founder of invested.ch and SFTA Head of Financial Literacy