Photo courtesy of flickr.com
Corona del Mar High School

Money makes money

 

 

In my drawer, there is a red envelope with $1,500 in it. It gets fatter as my parents have been giving me money every Chinese New Year since 2002. This 3,000-year-old tradition symbolizes a well wish for a long and peaceful life. I haven’t tapped into it as I want to keep the good wishes for as long as possible.

Several months ago, I joined the Future Business Leaders of America (FBLA) chapter at my school. The organization teaches high school students basic finance and how to start a business. FBLA inspired me to start keeping track of my money, do something about it, and brace for what lies ahead.

I did a little search on the internet and began to learn the concept of risk-taking and investing. Below are several ways you can do with the money if you are thinking about making more from it.

Gamble with PowerBall

One of the ways to risk the $1,500 to make millions is to spend it on a jackpot such as PowerBall. Mind you that this is not for the faint hearted. The chance of winning the big PowerBall jackpot last time was 1 in 292,000,000 (about 0.0000003%). With $1,500, I can buy 750 tickets at $2 each. My chance of winning the big prize, if I gamble with all my savings, is 0.0002%, or 1 in 500,000. The odds are so incredibly slim that it is less likely than the earth getting hit by the asteroid 2012 TC4, which is .00055%, according to Judit Györgyey-Ries of University at Texas. However, risking money on a PowerBall gives many a moment of unbounded dreaming before the drawing, but it is not for me.

Open a savings account

If I had deposited $100 each year to a bank account since 2002, with a 1% interest rate and compounded annually, I would have $1,610 today, an extra $110 compared to keeping the money in the drawer. This is an okay worry-free way to earn some return on the money since the deposits are also insured by the government. Keep in mind, however, that when the interest rate is lower than the inflation rate (historically about 2-3%), I will lose purchasing power even when the balance is growing because things become more expensive to buy over time. However, bank deposits are still better than putting the money in a drawer.

 

Stocks, bonds, gold, housing

Things can get quite complicated for investment. People buy stocks, bonds, houses, or gold, just name a few. Obviously, my $1,500 won’t do much. I could start with buying a few shares of stocks, but other investment choices will have to wait. As you can see, these investments generate higher returns than bank deposits. Historically, the returns can fluctuate quite a bit over different periods of time, depending on the economy; but overall, they beat inflation.

2002 – 2016 Total Cumulative Return Annualized Return (average each year)
U.S. Stocks (S&P 500) 121% 5.8%
Government Debt (10 Year Treasury) 77% 4.2%
Gold 286% 10%
Real Estate (LA and OC Markets) 95% 4.9%

Other ways to invest:

  • LEGOs, annual return is 12%.
  • Diamonds, annual return rate is 5%-10%

There are still other ways to invest, such as baseball cards, stamps and coins. The key is you need have the professional knowledge to pick the right item from a category. If done right, they can generate decent returns.

I must tell you that I have yet to start investing myself. I simply did some preliminary studies, found myself quite intrigued by it and am eager to dig further. Another word of advice, which came up often in my reading: Don’t put all your eggs in one basket. Diversity is crucial in mitigating risk. I plan to put a portion of my money in gold and the rest in stocks, and ask my parents’ opinion before I jump in. Hopefully, I can see some positive results in a few years.

“Money is of a prolific generating nature. Money can beget money, and its offspring can beget more…” Benjamin Franklin once said. His wisdom from more than 200 years ago much have a lot of truth to it since it is widely quoted. I’d like to get a head start in this lifelong investment game.