Principles of Growth and Preservation

P6　—　What does it mean to grow? What does it mean to preserve?

Risk and time, diversification, fees, compound interest, and inflation. You will learn a decision-making process based solely on principles, without mentioning specific product names. This course does not offer advice.

Supervised by: Mitsuru Hayama　／　Reading time (main text): About 10 min (4,902 characters of text at 500 chars/min; exercises and readings not included)　／　Beyond the text: 6 exercises · 3 readings

What this course teaches you to do

• Can explain how to increase and protect assets based on the four principles of time, diversification, fees, and inflation.
• Can calculate compound interest, cumulative fees, and value erosion due to inflation using one's own figures.
• Can explain insurance as a sharing of losses and distinguish it from savings.
• Can verify the term "principal guaranteed" within the scope of the law and deposit insurance, and can identify the four signs of a fraudulent solicitation.

Lessons (8)

1. Risk and Time — The Prospect of Gain and the Margin of LossRisk is the degree of uncertainty. Potential return and risk are a pair. The time until you need the money determines the margin of risk you can take.
2. Diversification — Not putting everything in one basketDiversification is a technique to avoid everything falling at the same time. Divide by class, divide within a class, and check the contents of the vessel.
3. Fees — the invisible priceFees are a cost you pay continuously while you hold an asset. Convert the annual percentage over the number of years into a monetary amount.
4. Compound Interest — Interest on InterestCompound interest is interest on interest. Principal × (1 + interest rate)^years. Seventy-two divided by the interest rate is the approximate number of years it takes to double.
5. Resistance to price increases — Nominal and realReal value = Nominal value ÷ (1 + inflation rate)^years. Protect purchasing power, not face value.
6. The Principle of Insurance — Sharing Losses, Not SavingsInsurance is the sharing of losses. Policy reserves are less than the total premiums paid. In case of failure, compensation is up to 90% of the policy reserves.
7. The Meaning of "Principal Guarantee" — Who Guarantees It, and Up to What Amount?For a principal guarantee, verify who provides it, up to what amount, and with what exclusions. Japan's deposit insurance covers principal up to ¥10,000,000 plus interest.
8. Solicitation Patterns — Four Signs and Where to VerifyClose the door at the four signs. Check the registration. If in doubt, call 188.

Readings (3)

• Liberalization　Russia　1992–1994　Various locations
  Section 5. The 1990s: When retirement funds deposited in savings banks lost their value due to inflation.
• The ledger laid bare　Netherlands　1790–1791　The vault of the bank, Amsterdam
  Section 7. The year 1790: When off-the-books lending hollowed out the coffers and the uchibu premium disappeared.
• The public mounts　Italy　1472　Siena
  Sections 6 & 7. Five hundred years of credit: Guaranteeing depositors' principal with income from pastureland.

Assessment

6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.