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YM: Do you have any general saving and investing advice for young people?
CUBAN: Put it in the bank. The idiots that tell you to put your money in the market because eventually it will go up need to tell you that because they are trying to sell you something. The stock market is probably the worst investment vehicle out there. If you won’t put your money in the bank, NEVER put your money in something where you don’t have an information advantage. Why invest your money in something because a broker told you to? If the broker had a clue, he/she wouldn’t be a broker, they would be on a beach somewhere.
Although I admire Mark Cuban in many ways, I disagree completely with his statement. Simple math will show that money put in the bank will at best just keep up with inflation (the interest rate = inflation) and at worst erode the value of your money (inflation is greater than interest rate). Money in the bank will never grow, which means the only way to grow your money is to put more into it, i.e. have a salary. Do you really want to be working and earning a salary in your 70s and beyond?
Money in the bank only works for two kinds of uses:
- You need the money in the near future (in the next three years) and don’t mind the risk of value erosion from inflation for a limited amount of time.
- You have so much money you can buy a couple of Ferrari’s every month from just the interest you get from the money in the bank.
I think Mark Cuban falls into the second category, so while his advice may work for him, it won’t work for the majority of us.
On the other hand, I do agree with him that one should never put one’s money in something where you don’t have an information advantage. But the information advantage need not be secret — just do your due diligence and crunch some numbers using the 10K and 10Q reports put out by the companies of your interest. You may ask, “If the information is so readily available, how is it advantage?” The answer is, most people don’t bother crunching the numbers. When you do, you have the information most people don’t and thus have the advantage over the majority of the people.
Ever since I was little, my parents have drilled into my head the “Save Money” mantra. But it wasn’t until I was broke in my early 20s that I became fully aware of the power of money. I was living in Boston on a student stipend at the time, and man, was life hard! The worst part was worrying about covering the rent because I was living paycheck to paycheck. In fact, life was so miserable I became known as “the bag lady of _____” among my friends because I would find ways to cut corners and save a few bucks on just about everything.
The pain and suffering stemming from living paycheck to paycheck has been permanently etched into my mind. I still cringe every time I think back to that time and the hardship I endured, and I vowed never to do that again. It was also during this time that my perspective on money changed forever.
I used to think money buys things both tangible such as clothes and non-tangible such as a vacation. While it is true that I still actively participate in consumerism (as indicated in my posts about my iPod Touch here and here), I now see money as buying, first and foremost, peace of mind. Some people call it freedom but I like to think of it as inner peace and serenity.
People often ask me why I save money. The simple answer is I don’t want to be broke and live the way I did when I am in my 60s or older. It’s one thing to be broke when you are in your 20s when you are still young and physically and mentally capable to weather the storm; It’s quite another to be broke when you are in your 60s and possibly pass your prime in terms of earning abilities.
What do you think? Please leave your thoughts below.