Saving and investing in money matters might be compared to defense and offense in military. One maybe considered more passive. You know, waiting in the trenches and waiting for the enemy to attack, and yes, expect to successfully defend. The other one is more active. It is not waiting for the enemy to come to you. It is coming after him, instead. “The best defense is a good offense” is the attitude of those who prefer an active strategy that would break through the enemy lines and gain an advantage against a defending opposition.
How can we translate this military example to saving and investing, and who might the enemy be? Saving is surely defense and a more passive approach to your money. You set aside some each month and with time your stack of cash or your bank account grows bit by bit. Good, right? Kind of. Here comes the mentioned enemy. Inflation! If you just save and do not invest, inflation reduces the value of your money as every year goods, services and the cost of living, in general, is becoming more and more expensive. There even might come a time after saving for a decade that you could buy twice less with the saved amount, than at the time you started saving. Times of hyperinflation (these are rare, but they do happen) could turn savings into a heap of worthless paper.
Now, even if you keep money in a bank in a savings account without making it work for you, in most cases inflation will still eat it slowly, but surely as annual inflation globally stands at 4%, while banks would not offer you that much for deposits you have with them. This type of strategy of protecting and accumulating money does not help you even to stay break-even, but rather causes you to continue losing it. We need a more active approach.
Investing is the active strategy of how you can both defend against inflation and increase it in value (or offense). Therefore, it would constitute a more aggressive strategy of not simply waiting for your savings to withstand an attack from inflation, but money would be employed to make more money that would put you ahead in terms of how much of it you accumulate over time. Selecting a more secure way of investing would most likely make your strategy both defensive and offensive.
Most popular ways of investing allow you to defend against inflation, but unfortunately, a lot of them do not put you ahead, and therefore are not that effective in increasing your capital. The numbers below prove it. Apart from putting your money in stock indices, the most popular ways of employing your money do not put you ahead.
SP500 – 7.952%
Mutual funds – 4.67%
Hedge funds – 2.2%
Employing your funds in short term loans on Debitum Network platform. You can filter the loans (assets) according to risk classes of the assets: conservative, moderate, aggressive.
The interest rates on the assets are the following:
The average annual interest rate in these risk classes varies from 9.8% to 10.85%. It means that using any of these 3 risk based strategies would still put you well ahead of the arch financial enemy inflation (4% annually) more than twice. (As of the 14th of November Debitum Network uses letter for credit scores. More on that here.)
We mentioned the word secure. Of course, it should be used carefully in finance and investments. However, each asset on our platform carries an additional guarantee. It means, that even if the company defaults on its’ payments, you will not lose your investments. Additionally, all the assets, whether conservative or aggressive are not just randomly placed there. They are handpicked for you by seasoned loan originators, who have been in the business of lending for many years.
Investing in short term loans for SMEs on Debitum Network platform would constitute both great defensive and excellent offensive system. You would earn above average returns that would beat inflation and put you well ahead of it from interest earned. Anti-cyclical invoice financing area, as well as extra guarantees on each asset, would help add extra protection for your funds in case of defaults and global financial crises.
Disclaimer: It is important to point out that the approach presented here is not necessarily suitable for everyone and is presented for information purposes only. It is not intended to be investment advice. You should seek a duly licensed professional for investment advice matching your specific situation.