Inflation, purchasing power?

So the other day someone talked to me about investing in some sort of life insurance thing, like $50 per month. Then 10+ years later you get the money back with interest, so you get more. Something like that.

Personally I think all insurance is scam. Warranties on products are bullshit. It's all a scam, it's all bullshit designed to take your money and make you feel good, but when the shit hits the fan you're covered in shit. But that's just me, say NO to everything.

Now, my issue with the life insurance thing is inflation and purchasing power. Okay so say I give you $50 per month, and 10 years later I got $10,000, and you give me $15,000 (pay no attention to the math, I'm just throwing random numbers out). Okay great, I'm a genius, I made money.

But but but... what I can buy for $10,000 today, I can probably buy LESS of the same stuff 10 years from now for $15,000. So it's a scam!

Am I being totally stupid here or does it make sense?

I think you are mixing insurance and mutual funds

BossBaby said:

I think you are mixing insurance and mutual funds

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It doesn't matter what you call it.

You give $X per month for Y years, you get back $XX after Y years.

What you call it doesn't matter. That wasn't the point of my question.

Scorpion Ghost said:

It doesn't matter what you call it.

You give $X per month for Y years, you get back $XX after Y years.

What you call it doesn't matter. That wasn't the point of my question.

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it does matter because insurance and mutual funds both works differently

If we talk about life insurance, you consider Inflation before starting SIP, and it's not an investment plan. It's for your family. You are not looking to earn money here. You take life insurance of 100000$ this year and start paying SIP every month. Even if you die next year, your nominee will get the insurance amount.

and if you are looking for an investment plan, then that's mutual funds, and it doesn't have any specific amount to look for you just choose a mutual with good return history and start monthly SIP

Scorpion Ghost said:

But but but... what I can buy for $10,000 today, I can probably buy LESS of the same stuff 10 years from now for $15,000. So it's a scam!

Am I being totally stupid here or does it make sense?

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It does make sense. Money purchasing power is melting down. Especially considering the amount of new money they're printing daily.

Every time they print 1 dollar, your dollar bill is cut just a tiny bit around the edges. See here how much money they're printing https://fred.stlouisfed.org/series/M1SL

I think you pay insurance for security and peace of mind so it's not a scam. But of course, locking money for 1 year in a bank to get 1-2% interest is not something that person should do.

However, the scenario you gave here about inflation is true but for some people getting 15k while putting little money every month sounds great as not everyone knows the art of investing.

Scorpion Ghost said:

I think all insurance is scam.

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Totally.
The government where I live did something similar 7 years ago, and the profit was supposed to be 20% after the mentioned period, the inflation rate reached 20% in 2020 only so...

BossBaby said:

it does matter because insurance and mutual funds both works differently

If we talk about life insurance, you consider Inflation before starting SIP, and it's not an investment plan. It's for your family. You are not looking to earn money here. You take life insurance of 100000$ this year and start paying SIP every month. Even if you die next year, your nominee will get the insurance amount.

and if you are looking for an investment plan, then that's mutual funds, and it doesn't have any specific amount to look for you just choose a mutual with good return history and start monthly SIP

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Good answer, thank you.

But that's all fancy talk

What I know is, I could buy a pack of tobacco for $1,30 about 8 years ago. Today that same pack is $3.40, even higher depending on where you buy.

Of course it's tobacco, so the governments can jack up taxes on it under the guise of "your health." Pricks! Like fining people for not wearing seatbelts because "we care." Pricks, thieves!

But still, everything is more expensive now. Salaries stay the same.. according to the people who work for salaries.

MasonF said:

Totally.
The government where I live did something similar 7 years ago, and the profit was supposed to be 20% after the mentioned period, the inflation rate reached 20% in 2020 only so...

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Yeah. Even health insurance annoys me, because what if I want that new treatment, or what if I want that specific doctor not covered by my insurance.

Are you gonna give me back my money so I can pay the doctor I want to see? No? So what are we doing here?

bartosimpsonio said:

It does make sense. Money purchasing power is melting down. Especially considering the amount of new money they're printing daily.

Every time they print 1 dollar, your dollar bill is cut just a tiny bit around the edges. See here how much money they're printing https://fred.stlouisfed.org/series/M1SL

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And seeing as every other currency in the world is tied to the dollar, and everybody follows America's lead in everything, whatever is valid for the US is valid for most of the rest of the world.

Any investmetn that offers a fixed return is meant for people looking for some level of security and peace of mind, in the end is better to have those 15k than 7k cause whatever stock, crypto or offline business you put the money into went south.

Obviously purchasing power always gets reduced to some extent with the time, even more now with the actual printing speed. Based on that the only good way to invest money would be speculation and try to get those 15k the next week, and again you'll also risk loosing a lot. The more you risk the more you can win and loose as well, to each his own.

perrymason said:

Any investmetn that offers a fixed return is meant for people looking for some level of security and peace of mind, in the end is better to have those 15k than 7k cause whatever stock, crypto or offline business you put the money into went south.

Obviously purchasing power always gets reduced to some extent with the time, even more now with the actual printing speed. Based on that the only good way to invest money would be speculation and try to get those 15k the next week, and again you'll also risk loosing a lot. The more you risk the more you can win and loose as well, to each his own.

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A nice balanced answer. Thank you.

But our investments and businesses never fail, so we know our path

You forget you deposited $50/m not the full figure at once. So, comparing will not work here.

Scorpion Ghost said:

So the other day someone talked to me about investing in some sort of life insurance thing, like $50 per month. Then 10+ years later you get the money back with interest, so you get more. Something like that.

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There isn't enough detail for me to fully understand if you are referring to "whole life insurance". If, in-fact, you are referring to whole life type insurance it goes beyond what you described.

The point of $50.00/month is to build up enough equity in the insurance policy so that the interest earned on the principal premium equity is enough to cover the cost of the monthly premium.

At that point you can choose to stop the $50.00/month premium and let your investment ride until maturity (your death) then there is a lump sum payout to the beneficiary (a predetermined amount that was used to set the monthly premium).

Now, the other benefit of such a policy is that, as you get older you can use the equity to reverse mortgage your retirement.
E.g.: Let's assume you have a $250,000.00 policy. At age 75 (or whatever), you can 'mortgage' the $250,000.00 policy (or a portion of it) for cash and sign over the that value to a lending institution.

The insurance company knows you are going to die at some point, the money is guaranteed by the lending institution to the insurance company.

Alternatively, you don't mortgage the policy, upon death your beneficiary (spouse, kids, cat or charity of your choice) gets the policy + interest earned.

Additional benefit, in some areas, funds in life insurance policies are protected/sheltered from debt collectors and bankruptcy.

Yeap lost around $2k in one such scheme and you have to pay $2k every year for 8 years

My mistake lesson learnt

TheVigilante said:

Yeap lost around $2k in one such scheme and you have to pay $2k every year for 8 years

My mistake lesson learnt

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Just put the cash under the pillow, sleep like baby

There is a paradox on the internet these days.
The more you invest, the lower the chances of serious multiplication.
Most of the stuff today can be produced at very low costs.
Meaning that if you invest in production, you can make a ton of money by selling your product even with a small margin of 1%.
Many things can be produced for free, including the text I am writing right now. This is just mechanical input.
These days mutual funds and similar forms of investments appear to be for those who aren't interested in utilizing modern technology to their advantage.
Hence their popularity. They promise something for noobs and people who have no idea about their possibilities.
They make one feel like there is the very minimal effort required to multiply their funds.
Sign a document and avoid all the issues caused by inflation and recession.
Before doing something like that, I would get a lawyer who would help me not get fucked.

OP, you aren't their target. Banks and insurance firms don't even realize BHW exists.
They would not have a very big interest in targeting someone like you. It's too small group and also too economically aware.
And you would not realize their low-ball forms of investments exist if they weren't everywhere.
This is just a matter of the fact we all use banks. But what if all the people started doing SEO?
We would have a very different outlook on life and investments in general.

If you manage to find a single person who became rich thanks to mutual funds, you have my grant.
Until then it's all meant for lowballers and exploiting people's insecurities.