This is part three in a series that will occupy the “money hacks” slot at Get Rich Slowly during April, which is National Financial Literacy Month.
In his book Saving and Investing, Michael Fischer writes:
Compounding our money with a return over a long period is the key to accumulating larger sums, but what is it that allows our money to receive a return, and what determines whether this return will be good or bad? [...] As savers and investors, a key way for us to compound our money is by directly or indirectly making our money available to users of capital. Users of capital can be companies or governments, who are looking for money to undertake projects or to buy something.
This relationship between providers and users of capital forms the backbone of our financial markets and our economic system. Before diving into the first of two parts on this topic, Michael explains why it’s important to start here:
Starting with the right thing (1:34)
What is capital? Capital is money. Capital can take other forms — real estate, for example — but for our purposes, capital is cash available for investment, cash which can be used to build bridges and construct factories, and so on. When we, as investors, provide capital to governments and companies, each party hopes for a positive return through this arrangement. Michael explains:
Providers and users of capital (7:47)
Obviously, this is not a sexy topic; it’s difficult to locate additional information about it on the web. I did, however, find one excellent article about how venture capital works, which does a fine job of illustrating the relationship between providers and users of capital.
Michael Fischer spent nine years at Goldman Sachs, advising some of the largest private banks, mutual fund companies and hedge funds in the world on investment choices. Look for more episodes of Saving and Investing at Get Rich Slowly every weekday during the month of April. For more information, visit Michael’s site, Saving and Investing, or purchase his book.