Introduction: The Game You Are Already Playing
Every financial decision—saving, spending, investing—is part of a game. Winners? They understand 3 key rules: Understand these, and money starts working for you.
Risk vs. Reward: What Playing It Safe Really Costs
Meet Alex and Jordan: 20 years later? Jordan’s wealth grew far more. Why? Because avoiding risk = missing growth. Real risk isn't losing money—it's standing still while others grow.
What Risk Really Means
It's not just “losing money.”
It’s opportunity cost—what you miss by playing it too safe.
- Higher returns = higher risk
- Lower risk = limited growth
Smart investors don’t avoid risk. They manage it.
Types of Investment Risk
How to Manage Risk
- Diversify
- Think long-term
- Know your comfort zone
Inflation: The Silent Thief
Everything used to cost less. That's inflation. Prices rise over time → your money buys less. 🛑 Saving alone isn’t enough. If inflation is 3%, and your savings earn 1%, you're losing purchasing power. More dollars ≠ More value.
How to Beat Inflation
Invest in assets that outpace it:
- Stocks: 7–10% long-term returns
- Real estate: Values + rent grow with inflation
- Commodities: Hedge against rising prices
🔁 Know the difference:
Nominal return = what's on paper
Real return = what you keep after inflation
Time Value of Money (TVM): Why Now Beats Later
Would you rather get $1,000 today or in 5 years? Take it now—so it can start growing. 💡 Money today > Money tomorrow. Example: Waiting = expensive
Why Businesses Love TVM Because money today can be reinvested.
Simple TVM Formula
FV = PV × (1 + r)^n FV = Future value PV = Present value r = return rate n = years Example You invest $5,000 today at an annual return of 7% for 10 years. FV = 5,000 × (1 + 0.07)¹⁰ FV = 5,000 × (1.967151) FV = $9,835.76 💡 So, $5,000 invested today turns into $9,835.76 in 10 years. That’s the power of time + compounding.
Assignment
If inflation is 3% and your bank pays you 1%, are you gaining or losing money?
a) Gaining (because my balance is going up).
b) Losing (because my money’s purchasing power is shrinking).
c) Breaking even (because 1% is still better than nothing).
Which is riskier over 30 years?
a) Investing in a diversified stock portfolio.
b) Keeping all your money in cash.
See the answers at the bottom
Summary and Key Takeaways
Risk ≠ bad — It’s the price of growth. Manage it.
Inflation kills — Saving alone won’t save you. Invest.
Time is power — Start now, let compounding do the work.
Answers to the Quiz Questions
1) Inflation is 3%, bank pays 1%. Are you…
Answer: b) Losing – Your money’s value is shrinking.
2) Which is riskier over 30 years?
Answer: b) Keeping all your money in cash – Cash loses value over time.
Bottom line: Start early. Take smart risks. Beat inflation. Your future self will thank you.
Additional resources
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