Do you invest? You may have a strong image that investing is like gambling, a scary way to lose money. It is true that you can lose money by investing. Unlike bank deposits, there are few investments in which the principal is guaranteed. However, those who avoid investing in the same way as pachislot, horse racing, bicycle racing, and other shady activities are missing out on an opportunity to increase their money.
The Japanese translation of French economist Thomas Piketty’s “Capital Theory for the 21st Century” hit Japanese bookstores at the end of 2014 and became a bestseller despite being a thick academic book costing over 5,000 yen. The success of this book probably lies in the fact that it answers many people’s questions about why they do not feel affluent and why the economic disparity has not been corrected, even though the economy is reportedly improving.
Thomas Piketty proposes the inequality “r > g”. The “r” represents the rate of return on capital and the “g” represents the rate of economic growth; in other words, “r” represents the rate of increase of money through financial investment and “g” represents the rate of increase of labor wages. Piketty analyzed data up to the 18th century and concluded that “r” represents a rate of return on capital of about 5% per year, while “g” represents a rate of return of only 1-2% per year. In other words, the fact that profits obtained through investment are greater than those obtained through working to earn money is a fact that is difficult for Japanese people, who consider working hard to earn money a virtue, to accept. There is a stark inequality in the world: those who have wealth become richer and richer, while those who do not have wealth cannot become rich no matter how much they work.
This inequality means that wealth earned through assets or investment grows faster than wealth earned through labor. The wealthy become richer, while those who can only acquire wealth through labor become relatively poorer. The assets of the wealthy are inherited by their children, who can continue to gain wealth by investing more. Of course, many countries have income redistribution policies, but Piketty argues that much wealth is inherited.
The gap is widening and the middle class will eventually disappear. To correct this imbalance, Piketty believes that the international community should work together to create progressive inheritance and income taxes and prevent the outflow of assets to tax havens.
On the other hand, Piketty admits that it is practically impossible to realize this idea. So, we who live in capitalism have to face this “r > g” reality.
Those who already manage large assets and are on the “r” side will have no problem. The problem lies with the average businessman who does not invest his assets. The simple solution is to start investing. They start investing in stocks, real estate, and forex.
Ordinary salarymen who do not have resources need to create and invest their resources as soon as possible. They can also put part of their salary into savings or build up their income on the side. However, some people may not be able to accumulate funds for wealth management with their current income.
Therefore, Mr. Piketty made a “proposal” to expand the definition of wealth and assets. The idea is to mobilize all assets, including intellectual assets, and ultimately monetize them by converting them into cash. For example, a person’s occupation, know-how, connections, knowledge, and other things that increase his/her value could be considered assets, and the income earned from using those assets could be considered “r” assets. This can increase the rate of salary increases and other income from the company you are currently working for. In other words, if you view yourself as an asset, you can aim to increase your salary within your company by increasing the value of that asset, or you can have a source of income outside of your core business. In some cases, you can even start your own business and become a manager. Whatever your style, it is important to take the first step toward generating income from your assets.
The key is how you view the “r” word. Even if you do not currently have large financial assets, if you can first create a source of funds or consider yourself to have valuable assets, you can avoid a situation where you despair of the widening gap that is beyond your personal control. The only way to achieve this is to study and start investing on your own initiative. It is also necessary to review one’s life, optimize one’s expenditures, and change one’s lifestyle to make time for study. Consider more effective ways to spend your money, such as cutting back on the after-work drinks you used to casually go out for or reevaluating your friendships. You can also change the way you use your time by investing in yourself to improve your skills or start preparing to start your own business in the future. As your savings and income grow, you will eventually have enough financial assets to invest. This way, your money will easily grow, even if it is small at first.
Working hard and diligently is very important. However, it is also true that it is not enough to increase your money. If you can only increase your money by working, your life will come to a standstill the moment you are unable to work for some reason. Also, being placed on the side of being employed for the rest of your life will force you to do work you don’t want to do for money and will hold you back from spending precious time in your life. Skills to make more money are essential for a better life. One of the easiest ways to do this is to invest.