It has to do with how long you expect a given dollar to live.
Below a certain point a dollar doesn't persist very long since you're mostly living paycheck to paycheck. If you're spending most of what you earn, then what matters is that you can pay for all the essentials. It doesn't really matter what the price is in absolute terms if your paycheck keeps pace.
(It would be really weird to cash your paycheck, buy some ETFs with it, then sell them all back a week later to pay rent and buy groceries. You'd just get back what you put in.)
Higher up a given dollar lasts a lot longer. Even the dollars in a retirement fund will last for decades - imagine if you were wealthy enough that 95% of your assets were like that. At that point you have two choices:
- Either keep it under a mattress, and lose a few percent of most of your money each year
- Or put it somewhere more active, where you have enough growth to keep pace
Below a certain point a dollar doesn't persist very long since you're mostly living paycheck to paycheck. If you're spending most of what you earn, then what matters is that you can pay for all the essentials. It doesn't really matter what the price is in absolute terms if your paycheck keeps pace.
(It would be really weird to cash your paycheck, buy some ETFs with it, then sell them all back a week later to pay rent and buy groceries. You'd just get back what you put in.)
Higher up a given dollar lasts a lot longer. Even the dollars in a retirement fund will last for decades - imagine if you were wealthy enough that 95% of your assets were like that. At that point you have two choices:
- Either keep it under a mattress, and lose a few percent of most of your money each year
- Or put it somewhere more active, where you have enough growth to keep pace