Investing is one of the smartest things you can do with your money. When you invest, you are essentially putting your money into something that will generate more money for you over time. This is in contrast to saving, which simply puts your money into a bank account where it will earn very little interest. In this blog post, we will discuss the benefits of investing and why it is a better option than saving!
Fractional Reserve Banking: Explained
The first thing you need to understand is how fractional reserve banking works.
When someone makes a deposit into a bank, the bank only keeps a small percentage of the total amount in its reserve. The rest of the money is then made available for other people to borrow. This system allows banks to lend out more money than they actually have on hand. This can create more money for the economy.
The problem with this system is that it can lead to inflation. Inflation is when prices rise because there is too much money chasing too few goods. This can be a good thing or a bad thing, depending on how you look at it.
Fractional reserve banking can be a dangerous system, but it is also necessary for the economy to function. Without it, banks would not be able to lend money and the economy would grind to a halt. That’s why it’s important to understand how this system works before you make any decisions about your money.
What Is a Bank Run?
A bank run is when a large number of people withdraw their money from the bank at the same time. This can happen for a variety of reasons. It usually happens because people think that the bank will go bankrupt and they will lose their money. When a bank run happens, it can lead to the collapse of the bank.
As mentioned earlier, the bank does not keep all of the money from loans in its reserve. This means that if a lot of people withdraw their money, the bank may not have enough to give everyone their money back. This can cause the bank to go bankrupt, and cause societal chaos.
A bank run is a very real possibility. It is something you should be aware of before you make any decisions about your money.
During the Great Depression, there were many bank runs. This was one of the main reasons that the economy collapsed. People worried about losing their money that they withdrew it from the bank, which made the banks go bankrupt.
Luckily today, there are organizations such as the FDIC and NCUA to help protect consumers from losing money due to their financial institution going bankrupt.
Why Investing Is Better Than Saving
Now that you understand how fractional reserve banking works, let’s talk about investing versus saving.
Investing is a better option than saving for a few reasons. First of all, when you invest, you are putting your money into something that has the potential to grow over time.
On the other hand, when you save your money in a bank account, you will only earn a small amount of interest. The interest rate on savings accounts is usually very low. This means that your money will not grow very much over time. In fact, after inflation is taken into account, you might even lose money!
Another reason why investing is a better option than saving is because it can help you diversify your investment portfolio. This means that you will not have all of your eggs in one basket.
For example, if you only have savings in a bank account, then you are at risk of losing everything if the bank goes bankrupt (if it is not insured by FDIC or NCUA). But if you have investments in a variety of different assets, then you will be much less likely to lose everything if one asset goes down in value.
There are several different ways to invest your money. You can buy stocks, bonds, and other securities. Or you can invest in real estate or other businesses. Bitcoin and gold are also popular investment options. Their limited supply helps to protect against inflation.
Investing is not without its risks, but it is still a better option than saving for most people. The important thing is that you do something with your money instead of just letting it sit in a bank account. Investing is the smartest way to grow your money over time.
How Inflation Depreciates the Value of Savings
Inflation is when the prices of goods and services go up over time. This can happen for several reasons. The cause is usually due to the government printing too much money.
When inflation goes up, the value of your money goes down. This means that if you have a lot of money saved up, then the purchasing power of your savings will go down over time.
For example, let’s say that you have $100 in a savings account and inflation is at 20%. This means that the purchasing power of your money has decreased by 20%. By understanding this concept, you are now able to see how inflation can erode the value of your savings over time.
Inflation can have a major impact on your ability to purchase goods and services in the future. That’s why it’s important to invest your money instead of just saving it.
When you invest, your money has the potential to grow at a rate that is higher than the rate of inflation. This means that your money will be worth more in the future, even after inflation has taken its toll.
How The Federal Reserves Cause Inflation
The Federal Reserve is the central bank of the United States. It is responsible for printing money and setting interest rates.
When this institution prints too much money, it causes inflation. This is because the total supply of money goes up, but the demand for goods and services stays the same.
As a result, prices go up and each dollar is worth less. The Fed has caused several periods of high inflation in the past, and it is one of the main reasons why investing is a better option than saving.
Investing is a great way to hedge against this inflation because as prices go up, so do the prices of investments. This means that your money will be worth more in the future if you invest it now.
Start Investing Instead of Saving!
Let’s sum up why investing is a superior alternative to saving.
The answer has to do with the way our banking system works. When you deposit money into a bank, the bank is only keeps a small percentage of that money on hand. This is the reserve requirement. The rest of the money can be loaned out to other people or used for other purposes.
This means that your money is actually being used to help grow the economy, rather than just sitting in a savings account. Investing is a better option because it allows you to do the same thing. When you invest, your money is put to work and can be used to help grow the economy.
There are some risks involved with investing, but if you are careful and do your research, you can minimize those risks. By reading more articles on this website, you will be able to learn about different investment strategies and how to make smart decisions with your money.
The bottom line is that investing is a better option than saving. Investing will make you more money over time, diversify your portfolio, and hedge against inflation. So if you’re looking to grow your money, investing is the way to go. Even if you are just trying to preserve the value of your savings, investing is still the better option