I told somebody that they’re losing money by saving it in a bank account and they asked me to show them how… so here goes:
Wells Fargo stock (WFC) is at $44.39 per share.
It pays a DIVIDEND of 4.60% APY
However, if you put your money in a Wells Fargo savings account, you only earn 0.01% — 0.10% APY
You’re money is literally losing out on 4.5% — 4.59% per year.
- Invest: $44.39 turns into $46.43 (+$2.04)
- Save: $44.39 turns into $44.43 (+$0.04)
Multiply that across whatever you have sitting in a savings account. It starts to add up when it gets into the thousands of dollars saved. You’re losing out on $2 for every $44 you have saved…
If you have $4,400 in savings, you missed out on $200… on top of that you miss the compound interest… because that $200 would earn $9.20 per year… and so on. The numbers stack fast over years.
The bank invests the money of its account holders… so if they’re paying a dividend as high as 4.60% to share holders, they’re likely pulling in 10% or more ROI…
- Wells Fargo gets 10% or more (estimate)
- Share holders get 4.60%
- Account holders get 0.10%
We’re not done yet… the dividend is separate from the stock value… if the stock value jumps to $50… you’ve now made a $5.61 profit… and that $5.61 will earn a 4.60% dividend ($0.25 APY)…. which is still more than your entire $44.39 earns sitting in a savings account.
Let that sink in… $5.61 invested earns 6x more than $44.39 sitting in savings.
This is why a lot of white and Asian wealth outpaces black wealth… we’re taught to save, save, save… and they’re taught to invest, invest, invest.
Learn how investing works if you wanna win the game and not just play it until you retire.
Why the wealth gap between black America and white America is so huge… is because of investing and inflation.
According to Google, inflation is projected for 2020 to be at 1.9%… which means your dollar will be worth 1.9% less than it’s worth today. If you’re earning 0.10% interest in a savings account, you’re being outpaced by inflation by 1.8%…
On the other hand, if you invest, you’ll be ahead of inflation by 2.7% WITHOUT needing to beg your boss for a raise. Bigger returns are possible, but we’ll stick to the Wells Fargo example. If the majority of black people aren’t investing, it means that we’re losing 1.8% of our community wealth per year times as long as we’ve been allowed to acquire wealth. It’s not a sustainable formula.
Here’s how that math looks when we start with $44.39 and lose 1.8% per year for 5 years.
- Year 1: $43.59
- Year 2: $42.81
- Year 3: $42.04
- Year 4: $41.28
- Year 5: $40.54
On the other hand, if we invest and we make 2.7% after inflation, our money looks like this after 5 years.
- Year 1: $45.59
- Year 2: $46.82
- Year 3: $48.08
- Year 4: $49.38
- Year 5: $50.71
It doesn’t seem like a lot until you understand that the more money that’s involved, the wider the gap becomes… even if people start out with the same exact amount of money. Here’s a comparison at $4,400 after 1 year accounting for inflation.
- Invest: $4,518.80
- Save: $4,320.80
The more money we save instead of invest… the more money we lose… but that’s not the whole picture. We’re also losing the potential of the actual value of the stock to increase… which is on average 7% in the stock market. 5 years of investing theoretically would look like the following when we account for stock increase of 7%, dividend of 2.7% after inflation, and compound interest.
- Year 1: $47.50 (stock) + $1.28 (Div) = $48.78
- Year 2: $52.19 (stock) + $1.41 (Div) = $53.60
- Year 3: $57.35 (stock) + $1.55 (Div) = $58.90
- Year 4: $63.02 (stock) + $1.70 (Div) = $64.72
- Year 5: $69.25 (stock) + $1.87 (Div) = $71.12
The real financial picture looks like this when two people start out with the same amount of money and take two different paths for 5 years:
- Invest: $71.12
- Save: $40.54
This is what we SHOULD’VE been learning in school and at home… this is what we should be teaching our kids. Keep these numbers in mind the next time you drop several hundred dollars on a white owned brand… several hundred dollars to sit at a table for a few hours in a club… or God forbid you throw it all away on liquor, drugs, and tattoos… The white person getting that money is probably going to invest a good chunk of it… turn it into a lot more money for YEARS… possibly generations… while some of you live paycheck to paycheck and pass nothing but debt and a funeral bill on to your kids. Not only is that bad for you as an adult… it’s a messed up thing to do to your kids after you know how to do better.