To Generation Z: Why You Should Invest?

Date: 6/09/2020

To my surprise, many of my friends are not motivated to invest their money. I tried to summarize the school of thoughts:

1. For people who don’t see the benefits of investing
   • I think investing is risky.
   • I think saving my money in the bank is fine. I don’t want to be rich.
2. For people who see the benefits of investing
   • I don’t have time/ It is difficult/ I don’t have the knowledge.
   • I think investing has no meaning to society. It cannot motivate me.
   • It is still too risky.
   • I tried but I seldom earn money by investing.

The Single Biggest Reason

Cash is Trash

Ray Dalio

While the reason why currencies are risky can be a difficult and long topic, the easiest way for you to see the impact of devaluation is to ask your parents how much did a lunch cost when they were at your age.

The Economist keeps track on the Big Mac price from McDonald all over the world and publishes a Big Mac Index every year. I created a chart using the published data showing the price of Big Mac in Hong Kong.

If you saved 10 dollars in 2000, with that money, you can only buy 1/2 of a Big Mac in 2020. Not a good idea. During the same period, the Hang Sang Index grows around 80%. Clearly, a better alternative.

The observations above are historical. The important question is will history repeat itself in the next 10 to 20 years. To answer the question, we need to investigate the reasons why currencies tend to devaluate or even died. This is a difficult and long topic. I will point you to some resources for your reference and probably write some posts on it. But, the short answer is YES, and even more than before.

I hope the observations listed above can inspire the first group of people.

• I think investing is risky.
• I think saving my money in the bank is fine. I don’t want to be rich.

The single riskiest thing to do is holding cash. And saving money in the bank will actually make you poor.

Investing is difficult and time-consuming

First, if you started to recognize holding cash is not an option, you need to invest your time to understand what else can you do even it is difficult and time consuming.

Second, only active investing is difficult and time-consuming. By active investing, I mean actively selecting, buying or selling assets (e.g. stocks). I meet some friends who do day trading. They spend their after-work hours at night to seat in front of the computer screens and make numerous investing decisions. Honestly, this is not for all of us.

A simpler but effective way is to just buy the market index. By buying the market index, you are tied with the countries’ economy since market indexes usually contain the largest companies and are well diversified. From 1926 to 2018, the S&P500 annualized return is 10%-11%. You don’t need to do anything. You don’t need to worry about the financial crisis. Is it difficult? Is it time-consuming? Not at all! The economy will do the work for you. Human evolution will do the work for you (improving productivity through innovations).

Currently, a major share of my portfolio are US index fund and China index fund since I believe US will continue be the strongest in the coming years (5-10) and China has the ability to threaten the power of US. I don’t know who will win and placed my bets on both.

Going back to the beginning,

• I don’t have time/ It is difficult/ I don’t have the knowledge.
• I think investing has no meaning to society. It cannot motivate me.
• It is still too risky.
• I tried but I seldom earn money by investing.

If you follow the passive method, no time is needed and it is not difficult (Of course, I still think spending time to understand how financial market works is beneficial).

For the risk part, there will be ups and downs for sure. But, in the long run, it is human innovations doing the work. This factor is stable. You won’t see a lot of frustrations in GDP. The historical return of S&P500 tells us that even with the great depression, internet bubble, 2008, the index delivered 10% annualized return. Is it risky?

Next, if you tried and seldom earn money, I bet you take the active investing approach. Active investing needs a good amount of knowledge and time. If I were you, I will switch 50% of my portfolio to passive investing and learn active investing using the rest.

Finally, to answer the question of whether investing has meaning to society or not, the selfish answer is why you care. The short answer is if there is no meaning, it won’t exist. But it is completely fine that you are not interested in finance. But at least, do something (passive investing) and don’t hold cash.