As we will see in this article, long-term savings plans are often a very good way to invest money.
Even though Forex can make you more money in less time, it also comes with more risk.
Our American economy is a free economy, and it works on the idea that if we leave the factors of production alone, without government interference (by "factors of production," we mean land, labour, and capital), as long as the game is played fairly and honestly, those factors will move toward their most efficient and beneficial use. This will happen because they will be drawn to the places where they are worth the most, which is shown by the rate of return. The best return is in the places that need them the most.
For the American economy to work, each investor must try to get the best return on his money that he can get for the risk he is taking.
This is not only what rate of return is based on as a justification. It shows why some businesses need money and can give a good return.
Most people don't need much convincing to believe that if they can get 10% on their money instead of 6% with the same amount of risk, they should do that. This article tries to show him how to invest his money in ways that will give him a higher return. But first, it might be helpful to explain why the rate of return on your money is so important:
Not too long ago, some close friends of ours put $1000 into a promissory note that pays 12% per year and 1% per month. This note is due every month.
The husband works for the government, and the wife works as a pharmacist. They hope that the wife will stop working soon and retire for good. But they are used to getting by on two salaries, not just one, and when one of them retires, it will make a big difference in how much money the family has. Since the kids are grown and live on their own, they think they can save $200 a month after taxes.
This will be paid for with the money the wife makes. She hasn't saved this much so far, mostly because she doesn't seem to have a good reason to, and because she likes to shop a lot in department stores. So, a forecast of her $200-a-month savings was made so that she could use the facts to decide if she should try to save $200 every month or not. The forecast looks like this:
On January 1, 1961, she put away her first $1000. At the end of the first month, she got a check for $10 (1% per month) in interest. She didn't spend this money, though. Instead, she let it stay in the account so that it could turn into capital and raise the earnings base. But at the end of January, she put in $200, which was her first monthly savings. This meant that at the end of January, she had $1,000 in the account, $10 in interest, and $200 in monthly savings, for a total of $1,210. In February, the interest on this whole amount of capital was.
At the end of the first year, she had put in a total of $3,400, but the interest made this amount grow to $3,662.
In the normal course of her business career, her income will go up a little bit each year as she gets better at her job. However, as her income goes up, she probably won't be able to save any more because she has to pay taxes on her interest, whether she spends it or just lets it build up in her account.
By the time she retires from business at age 63 on January 1, 1980, her total savings of $15,400 have turned into $108,476 in capital. Her monthly interest check is more than $1,000. This is on top of the pension she gets from her job as a pharmacist and the pension her husband gets from the government.
Is all this math just made up? It could be, but I and a lot of other people have had money in this company for five years, and all that has happened is that the company has grown, gotten stronger, and made more money each year. Most likely, they will stop paying 12% per year at some point. Then it will be important to find another investment that is similar.
We could say that the type of investment we are talking about is one that has a high return and a fixed dollar amount. The part of the definition that says "obligation" means that someone or some organisation has to pay back the money invested.
The part that says "fixed dollar" means that you have to pay back a certain amount of money. Even though oil wells, tung groves, and citrus groves can be great investments and make good money, no one has to pay back a certain amount of money.
You can make even more money in less time with Forex, but you could also lose a lot, so you have to decide.
