$100 now or $500 in 5 years?

When offered $100 now or $500 in 5 years, the answer seems very obvious.  We should wait and get the $500 in 5 years, because it is a great investment.   However, theoretical questions such as this one sometimes blind us from considering our actual circumstances or alternatives. In fact, there are many times that taking the $100 right now is a better decision than waiting.  And even more importantly, sometimes it is entirely the wrong question to ask!

So, instead of defaulting to the uni-dimensional answer about the time value of money, it is important to ask a whole bunch of other questions.

Survival

1. Am I putting my survival at risk by not taking the $100 today?
2. Will I need the $100 during the next 5 years?
3. Will I be able to sleep at night knowing I might lose the $100?

Risk and Probability

1. What is the chance l will still be alive in 5 years?
2. Will inflation take away any gains?
3. How many other bets have I placed like this one?

Opportunity

1. Can I find a better investment for the $100?
2. Should I use the $100 to invest in my own personal growth?
3. Will the $100 be investible?

Tactical Considerations

1. Can I invest $50 instead of $100?
2. Can I borrow $100 and make the difference?
3. Can I sell the investment to someone else for $20?
4. What taxes will I pay now versus later?

Investing

Taking cash now or letting your (missing word) grow into more cash later is the real question here.  It is not always easy because it deals with so many variables, and there is truly no correct answer.  It is all contextual to an individual’s specific situation.

The totality of all  our investing decisions combine to create an overall picture.  That is the true picture.  Strategies like diversification, risk tolerance, and hedging can be used to lay the foundation for a solid future.  All this, on top of a low-risk income-producing base of assets, can let you sleep well night.

So, the answer to the question is that you should do a little bit of both.  Whatever is contextual to you, and comfortable for you.  It is all just a bet on the future anyways.

Do your homework and then you can sleep well!