If You Want to Invest and Make a Lot of Money, You Should Know Economy

If you want to invest and make a lot of money, you should know economy.

And If you want to know economy, you should know basic economic indicators.

So, I will talk about some fundamental economic terms such as inflation and interest rate. If you are a very rich man, you don’t have to listen to my presentation. But If you are not a person who can live without any worry of money, I think that it will be helpful for you.

First, let’s talk about price and the value of money.

I’ll give you a simple quiz.

Suppose you have one thousand dollars, if the annual inflation rate is five% over the next 15years, after 15years what’s the value of your money? The answer is 500$. The value of your money will drop by half so it will be the value of only 500 dollars. In other words, If you have your 1000 dollars in your house, the money will reduce 500 dollars.

The price is the value of product and generally continues to rise. 10years ago, if you have 20 dollars, you could buy many things in the market, but nowadays you can buy just a few things. It’s the same story when you buy milk.

What is the impact of inflation on our economy?

1. Cost of borrowing

• High inflation may also lead to higher interest rates for business and consumers with debts(ex. Rising mortgage rates)

1. Risk of wage inflation

• This leads to rising labor costs and lower profits

1. Decrease in investment

• Company reduce their investment due to higher interest rates

1. Uncompetitive exports

• A high relative rate of inflation can reduce competitiveness and this will lower demand for the country’s exports

1. Depreciation of currency

• Obviously, Inflation lower the value of money.

1. Falling real incomes

• If wage growth rate is smaller than the increase of price, this result can occur.

1. Negative real interest rates

• If the interest on saving is lower than inflation, the real interest rates will record minus growth rate.

what if you deposit your money in a bank? If you deposit money in a bank that gives lower interest rate than inflation rate, in this case also, the value of money will reduce after a long time. So, you should find investment products that you can get higher profit than inflation rate.

This chart shows that the relationship between inflation and interest rate. As you see, the two lines have similar shape. And this table shows many country’s interest rates last year. The interest thing is that some countries have negative interest rates. Negative means minus.