Investing for the Long Term

CHAPTER 5Investment

Now that we have a conceptual economic framework to employ, we can turn specifically to investment. In doing so, the key point I want to highlight is the vital role of saving. Saving, unsurprisingly, is key to investment and the ultimate source of future wealth. Without savings, there can be no healthy investment or general well-being.

SAVING AND INVESTMENT

Each individual accumulates savings at a different rate, requiring a varying degree of sacrifice in terms of income that is not consumed. Saving finances technological development and wealth creation, and is responsible for the continual improvement in the standards of living that we enjoy today.

Although some misled people warn of a supposed one-off savings glut, an excess of savings is never bad news; it always contributes to financing projects which improve the productive structure. If an excess of savings results in very low returns and savings cannot be put to good use over a reasonable period of time, they will end up being consumed in products and services.

Personal propensity to save depends on a large number of factors: income, age, consumption or investment opportunities, concerns about the future or an inheritance… No two people have the same propensity to save, nor does this propensity remain stable over time.

In reality, saving, for a lot of people, is a – fortuitous – problem to be resolved. The key questions we ask ourselves are: What to do with them? How to preserve them? How to grow ...