The greater the potential for growth, the greater the potential for loss.
Risk is the degree of uncertainty in the outcome.
Understanding the Basics of Saving and Investing
What does it mean to grow? What does it mean to preserve?
We will compare time, diversification, fees, and prices, and organize the factors for making decisions when growing and protecting your money.
Time to read the text: about 10 min
The review questions are optional and not included in this time.
What you can read: the course opening and contents are free; the full text is for those who have purchased
After purchase, you can read the full text once your access starts.
The Basics of Growing and Protecting Your Money in 3 Minutes
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The time until you need the money determines how much risk you can take.
Daily ups and downs tend to even out over a long period.
Don't put all your eggs in one basket. Avoid everything going down at the same time.
Separate by type, separate within types, and check what's inside.
1918
The whole country put its money into one country's bonds, and that country disappeared.
The nation they lent to repudiated all its debts.
Fees are a price you pay for as long as you hold the investment.
29,000 dollars
The difference between a 0.25% and 1.00% annual fee over 20 years (on $100,000 at 4% annually).
Compound interest is interest on interest. $100 at 5% a year becomes $162.89 after 10 years.
72 ÷ interest rate = approximate number of years to double your money.
If inflation is 3% a year, the purchasing power of 100 becomes 74.41 after 10 years.
Protect the amount you can buy, not the face value.
Insurance is for sharing losses. It's not a savings account.
Part of the premiums you pay is used for payouts and operating costs.
Soliciting investments from people with a 'guaranteed principal' is itself against the law.
The government guarantee is deposit insurance. Up to 10 million yen in principal plus interest.
2In numbers
29,000dollars
$100,000 at 4% annually for 20 years. The fee rate makes this much difference in the final amount.
74.41
What 100 could buy, after 10 years of 3% annual inflation.
3What would you do?
An acquaintance invites you to invest: 'If you invest in our company, the principal is guaranteed. Please decide by the end of this month.' What would you do?
Pick one
It's a guaranteed principal, so it's safe. I'll invest.
In Japan, the law prohibits soliciting investments from the general public by promising to return the full principal. Any solicitation that claims 'guaranteed principal' is itself illegal.
Don't decide on the spot. Check their registration and consult with 188.
This is the procedure from this course. 'Right now' is a red flag. If you see the warning signs, shut it down, check the other party's registration, and go to a help desk.
This course doesn't tell you what to buy. You will take away the ability to check who is providing a guarantee, up to what amount, and with what exceptions.
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What you will understand after this course
- 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.
More about this course
Course number: P6 — What does it mean to grow? What does it mean to preserve?
Supervised by: Mitsuru Hayama
Beyond the text: 6 exercises · 3 readings How reading times are calculated
You will also understand
- 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.
You can start this course without reading any other course.
Also worth reading, to see the connections (optional)
- Deciphering Amounts, Percentages, and Statements
What you learn: Can distinguish between nominal and real values, and can personally calculate the erosion of real value using the inflation rate.
Assessment
6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.
The 8 chapters of this course
- 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.
- 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.
- 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.
- 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.
- Resistance to price increases — Nominal and realReal value = Nominal value ÷ (1 + inflation rate)^years. Protect purchasing power, not face value.
- 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.
- 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.
- 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.
Read next
How Taxes, Pensions, and Social Insurance Work →What you learn next: Be able to classify taxes into three categories—income, consumption, and assets—and identify which category the taxes you pay fall into.
Time to read the text: about 10 min ／ What you can read: the course opening and contents are free; the full text is for those who have purchased
Price
After purchase, the full courses, the illustrated books, every country’s story and the numismatics examination are open to you.
See the price →