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Lets say in the economy there are 10 products, and there are 10 money units. Central banks like the FED, can print money when they want. When they print, they increase the money in circulation. You then have not 10 monetary units, but you have maybe 20! The money supply doubled. If the product costs $1, it now costs $2. The product is much more expensive now, is it now better? The answer is NO! It is the same product, but you must pay much more now. See, this is inflation. It can be bigger than you think. As a rule of thumb, every 5-10 years the purchasing power of your money halves. This is the reason, why in todays world, everyone needs to invest (or create a business). Just saving the money in the bank is over. There are no positive real rates you can get on your money.
The basics of personal finance is this: where is your income and cash coming from? The concept of the cashflow quadrant comes from Robert Kiyosaki, the Author of Rich Dad, Poor Dad. The left side (employee E and self-employed S) are exchanging their time for money. This means, without them working they do not earn money. Now lets look at the right side. The business owner B, and the investor I, are not exchanging their time for money. They are doing something different. They are using people (or systems) to generate cash. The investor uses money itself to make more money.
I made some money, lost some money. Going nowhere. I increased my savings rate, tried to live like a monk, invested everything I could. Some of it into highly speculative commodity stocks, some into new asset classes (crypto assets). My portfolio was going up. Within a relatively short period of time I made $200K. I thought I was a genius. My portfolio will be going up forever. Then it suddenly went down – hard! I was paralyzed, did not know what do. See extra info on h2-intel.com.
Real estate: Investors can acquire real estate by directly buying commercial or residential properties. Alternatively, they can purchase shares in real estate investment trusts (REITs). REITs act like mutual funds wherein a group of investors pool their money together to purchase properties. They trade like stocks on the same exchange. Many veteran investors diversify their portfolios using the asset classes listed above, with the mix reflecting their tolerance for risk. A good piece of advice to investors is to start with simple investments, then incrementally expand their portfolios. Specifically, mutual funds or ETFs are a good first step, before moving on to individual stocks, real estate, and other alternative investments.
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