A typical saver who parks their cash in a safe, protected savings account still faces the risk of inflation eating away at the value of their money. By the time they come to spend it, their money may have increased slightly on paper, but lost value in real terms.
You bought a racehorse and the biggest meeting of the year is coming up. Having already invested time and money into this horse, regardless of the odds and the conditions and the competition, you feel almost obliged to back it on the day as well.
“Stock markets go up over time.” True. “Stocks go up over time.” Mostly false.
In 1900, America had around 4,000 millionaire families. If those families had done nothing clever at all, simply invested in the stock market, spent a modest slice each year and left the rest to compound, the maths says they should have produced somewhere in the region of 16,000 billionaire households by today.
A thought experiment on why even perfect foresight about the news is not enough, and why owning the market usually is. Imagine it is the end of 1999. The millennium is about to turn, the dot-com boom is at full roar, and someone hands you tomorrow's newspapers for the next 25 years. Not the share prices, just the headlines. You flick through and two pharmaceutical stories jump out.
Why, in a high tax, high-transparency Ireland, investing your money well is often the smartest financial decision. A recent Financial Times column recounted a dinner conversation that has stayed with me. A successful private equity investor was asked why he didn’t simply buy a bigger home and move in full-time with his partner in another city. His answer wasn’t about her, or the city, or the house. It was: “I couldn’t do that. I’d be paying a much higher tax rate.”