The key to successful investing — Chicken nuggets
Here in Europe the culture behind investing has always been negative, associated with gambling and untrustworthy financial institutions.
But ironically not investing can be riskier. Why? Let me explain with the humble chicken nugget.
In 2005 the chicken nugget became part of the consumer price index, CPI[1]. CPI is a number calculated using a basket of everyday household items and is the government’s way of measuring an average person’s cost of living. It just so happened that chicken nuggets have become a way of life for most people since 2005.
So what does this have to do with investing? Well to survive you need to be able to pay for your cost of living, obviously, and changes in CPI can help you estimate the cost of maintaining your standard of living on a yearly basis.
As an example a loaf of bread 30 years ago would have cost you 46p but today that’s 107p[2]. Over the last 30 years CPI has grown by 2.6% each year[3]. This is what economists call inflation.
With interest rates near 0% you can quickly see how keeping your money in a normal savings account isn’t going to cut the mustard. Comparatively If you’d have invested in the US economy you’d have made 8.2% on average after all the ups and downs[4].
Ironically being safe with your money is risky. At the end of the day if you can’t grow your money at least as fast as the cost of living then how are you going to afford those chicken nuggets?!
So there you have it, chicken nuggets… The first of many reasons why you should invest…
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[1] What’s in the CPI basket?, https://www.ons.gov.uk/economy/inflationandpriceindices/articles/whatsinthebasketofgoods70yearsofshoppinghistory/2016-07-21
[2] Price of bread, https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/czoh/mm23
[3] ONS CPI Numbers, https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7bt/mm23, Dates used Jan 1988 to Dec 2017
[4] SPX price by month, http://www.multpl.com/s-p-500-historical-prices/table/by-month
