The Power of Investing
March 11, 2011
With tax season in full bloom, many people are eagerly awaiting their tax returns so they can snag a new 3D HDTV, an iPad2 or tickets bound for Tahiti.
A recent survey from the National Retail Federation shows 13 percent of taxpayers plan to spend their refund on a major purchase such as a TV, furniture or car. This is up from 2007 when only 11 percent said they planned to use the money on a major purchase. Another 12 percent plan to use the money for a vacation.
On the bright side, 42 percent of respondents planned to save the money from the IRS or use it to pay down debt. The percentage of savers has increased 9 percent since 2007.
While the newest gadgets and exotic trips seem like must-have items at the moment, Americans could possibly purchase many more of those items and take many more of those exotic trips if they exercised a little patience.
An interesting blog entry from Kyle Conroy, a recent UC Berkeley graduate, picked up by The New York Times gives a new perspective on the power of long term investing. Conroy compiled the price of a number of popular Apple products over the past few years and calculated how much that money would be worth if the consumer had invested it in Apple’s stock instead.
According to his data, $5,700 in November 1997 would have gotten you the most powerful laptop Apple had to offer—the PowerBook G3 250. Today, the Times says you can find one on eBay for about $50.
On the other hand, if you would have taken that same money and bought $5,700 worth of Apple stock in November 1997, it would be worth an unbelievable $330,563 at Thursday’s price levels.
This of course, is a very extreme example. In fact, the Times points out that $3,500 in Hewlett-Packard stock in 1997 would only be worth $4,560 today. And of course there’s always the risk of losing most if not all of the initial amount; just ask investors in Enron, AIG, Lehman Brothers and General Motors.
Extreme examples aside, investing plays an essential role in building a person’s wealth. By investing even small amounts, you can tap the growth potential of a growing global economy. The key for investors is to compare and diversify. Compare which asset classes fit your investment goals and diversify so you don’t put all your apples in one basket.
So before you spend that tax return, think what today’s patience could mean for tomorrow’s nest egg.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 12/31/2011: Apple. By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. Diversification does not protect an investor from market risks and does not assure a profit.