Value In Investing

Submitted by Calgary Chamber of Commerce

Investing in the stock market provides you the opportunity to put your capital to use by generating a passive return. You don’t need to market, sell or help (i.e. work for) the companies you own shares of. While many entrepreneurs might believe they can deploy their capital better than others, diversified income streams now and in retirement play a large role in one’s overall financial success. Let’s discuss why saving and investing your capital helps you realize actual wealth.

Human Capital As an entrepreneur, you are constantly working overtime, building your business. You might be reinvesting your earnings into the business to help it grow. These activities turn your Human Capital, which is your education, your experience, and your drive, into financial capital. Human Capital, unfortunately, is not an infinitely renewable resource. Eventually, you tire of turning profits from human capital and want to realize the value of your work. All the cash you saved however cannot cover your

financial needs in retirement if you maintained the same lifestyle; you’d be eroding your savings no matter how successful you were. This is where stock and debt ownership come in.

Long term returns

Some people save their financial capital in GICs, Guaranteed Investment Certificates. GICs are a safe way to save money with guaranteed returns. Decades earlier GICs saw returns of 4% whereas now, returns are merely 1-2%. Is that prudent when inflation is higher than 2%? If you have any intention of keeping your money working after you earn it, you need to invest in the market. Stocks1 and Bonds2 are saving strategies to stay ahead of inflation. There are also other more speculative investment vehicles including Hedge Funds, Digital Currencies, Real Estate and Private Equity. Either way, investing is necessary to retain the value of your hard-earned financial capital over time.

“All the cash you saved however cannot cover your financial needs in retirement if you maintained the same lifestyle...”

Retirement

Retirement is generally the reason why people invest. A 5% return on $10,000 saved annually over 20 years, would generate over $330,000 at retirement. This is the power of compound interest combined with savings. Still, people find a variety of excuses not to invest, robbing themselves of opportunities. Many larger companies are professionally managed and succeed in producing profits, returned to share owners as dividends. Selling when stock prices go up generates capital gain. Bonds/Debt also known as Fixed Income, can see their prices vary as well as pay interest.The combined capital gains, dividends, and interest gives you the return from investing, paving the path to your retirement.

Please feel free to reach out with any questions and more information at calgarychamber.com