A few decades ago, there was little question regarding the best way to save for your future. You put your money into the bank and with the high interest rates of the past those savings would grow at a reasonable rate each year. Not many individual investors were looking for alternatives because the rate of return was reasonable at the time; however, with today’s zero to negative interest rate policies, this is no longer a viable option.
Consider that most banks offer 0.5%-3% annual percentage yield for a certificate of deposit, using a CD is not a viable option to increase your monies purchasing power for the future. Inflation will erode any interest the banks will give you in return for you lending them your savings. Going to an investment bank will yield significantly higher returns. Most mutual funds can yield anywhere from 5%-12% returns per year, however you need to be willing to ride out the ups and downs of the market. A third option is quickly gaining adoption and is redefining what savvy investors can do with their savings. Financial Technologies or Fintech as it is commonly called, is a growing industry that is creating a plethora of new possibilities for the average investor that simply didn’t exist a decade ago.
So, what is the best option for those who want to save for the future and receive a reasonable rate of return?
Let’s explore three options from the perspective of three individuals (Banking Bill, Investing Igor and Fintech Fiona) who are actively saving for a down-payment for a home. All three will be starting with $5,000 and will have the goal of saving $30,000 over the next 5 years.
Banking Bill: Bill takes his $5,000 and decides to place his money into a CD at the bank. Bill has an uncle that works at the local bank and his uncle was able to help Bill get the best available rate for the following five years. Bill’s certificate of deposit sits for the next 5 years, growing at 3% APY, which is more than most CD’s yield. Once the CD matured Bill saw that his savings was now $5,796. So, in 5 years his savings has grown by $796. Unfortunately for Bill, not only is this not even close to the $30,000 he needed for his down payment, the housing market appreciated in value since he made his original deposit and he now needs $35,000 for a down-payment on a home. Bill was a little confused and disappointed with his situation. He did exactly what many others had done in the past, however because to the historically low interest rates, he was now further away from his goal than when he started 5 years ago. Clearly the model for holding money in the bank and expecting a reasonable return is broken.
Let’s see if Igor fared better.
Investing Igor: Knowing the banks don’t pay enough interest to preserve your purchasing power, Igor decided investing with a wealth management company was the best option for his savings. He looked online and found a company with a good track record and opened up an account. He knows the market can be volatile in the short term, but also knows the stock market is one of the best investments over time and is confident his $5,000 is much better off invested in the market’s vs placed in a bank. Having his savings actively managed in the markets also allows his account to compound over time, which greatly accelerates the growth of his investment. 5 years later when Igor looked at his financial statement, he is pleased to see his original $5,000 is now worth $7,013! Igor was able to make 7% returns after fees per year and his investment was able to compound, earning him even an attractive return, however even though Igor’s $5,000 had grown each year and compounded to a $2,012.76 profit, he was still far away from his dream of buying a home. In fact, since the housing market had outperformed the stock markets since he invested, he was actually further from his goal of buying a home even with his $7,012 in hand. His investment banking account ended up being a mixed experience.
Now how about Fiona’s Fintech investment?
Fintech Fiona: Fiona knew that giving her money to a bank wouldn’t be much better than putting her savings under her mattress at home and that wealth management companies are a good model for higher returns, but not the best option for her plans to buy a home. In this digital age there are some investment options that can yield much higher monthly returns so Fiona decides to take the initiative to do a little research. She came across a Fintech company www.Mi-Ahorro.com. Mi Ahorro yields an average return of 3.25% net per month. She did some digging into how Mi Ahorro works and decided it was the best option for her. After 5 years of compounding, Fiona’s investment account had grown to a whopping $34,070, completely exceeding her savings goal of $30,000. How was this possible? By compounding her monthly returns, Fiona’s investment grew at a much higher rate than Bill and Igor’s account. Fiona’s investment grew 3.75% per month and after 60 months of compounded growth, she had more than enough to make the down-payment on her dream home and have over $4,000 left over in her Mi Ahorro account.
As you can see by the three very distinct experiences, having an intelligent and thoughtful plan from the beginning was key to her success. Doing what has worked for others in the past did not equate to success in today’s investment climate. Our job as informed investors are to make sure we stay current and evolve with the times or we will be left behind.
The legacy investment banking model is becoming increasing outdated and less competitive with newer forms of investment. With the Financial Technology model, more of the return on investment is going directly to the investor and less to pay for all the expensive and unnecessary overhead of large banks and financial institutions. Mi Ahorro’s business model has a client first approach that yields significantly higher returns than other investment options all while having the security of brokering with one of the most trusted and well-regulated brokers in the world (IC Markets). If you have an investment goal and would like some help planning on how to make your goals a reality, visit the Mi Ahorro website for more details about how Fintech can power your investment into the future.