Money in the bank is an investment

For many people, they don’t realize all the assumptions they inherently make all around them.

When you put your money in a bank, you are actually making an investment in that bank. They take your money, hold onto 10% of it as their required reserve and then invest 90% of it in the form of mortgages, bond purchases, stock purchases, etc. The interest you are paid on your money represents a fraction of the profit they made from those investments.

There are many different alternative investments you could make:

  1. You could buy equipment to start setting up for a future business
  2. You could buy a house
  3. You could invest in stocks directly yourself
  4. You could invest in educating yourself
  5. You could buy items that you can sell when you need your cash bank

There are more items that could go on that list but you get the point. Some people forget, the best marketing you don’t even think of as marketing. “Put your money in the bank” is traditional wisdom, but that tradition was created through marketing before your were ever born.

We are about to go through a turbulent financial period. Educate yourself on how finance works because if you don’t do it, you’ll find out there are many assumptions, and more importantly risks, that you weren’t even aware existed.

P.S. Here are some things you should try to understand:

  1. What does a bank do with your deposit?
  2. What is the national debt?
  3. What is a bond?
  4. What is a mortgage-backed security?
  5. What is an asset
  6. What is a liability
  7. What are the factors that affect interest rates?
  8. How do interest influence bond prices?
  9. What is margin in the stock market?
  10. What is leverage?
  11. How much leverage is available on different asset classes?
  12. How does leverage change risk?