June 23, 2014 by Liberty
The stock market has changed in the perceptions of the average person within the last few decades. Throughout history in America, the stock markets were perceived as a trade. It was something that an investor did. It wasn’t something that the average American gave a hoot about beyond the basics. (a collapse was seen as bad but the daily fluctuations were hardly worth mentioning.)
Today, fewer and fewer people think about the stock market as a trade. It’s something that absolutely everyone is supposed to put some money into. Instead of limiting investing to the people with money to lose, the average person is getting pushed farther and farther into the markets. These average men and women are not trained in the trade. More importantly, they’re often the people with the most need for the money they’re putting at risk.
The U.S government has been running a policy of pushing stock investments down the throats of average Americans for years. Their battle plan includes avenues including:
The government has consistently offered favorable tax laws to investors. This should come as no surprise to anyone. When the tax laws were designed, the most powerful people in the country didn’t make their income from earned income. They made their money from investments. Their high financial influence made sure they didn’t suffer.
Capital gains and losses were explicitly designed to increase the amount of money going to investments. It allows an investor to skim more money off their profits while subsidizing the risk through the taxpayers. It’s a virtually idiotic risk not to take in some way or another.
While tax benefits can pull a few new investors in, 401k programs were designed to drag the average American into the stock market by their ankles. In theory, 401ks are an amazing tax benefit. People could make thousands more a year investing in their own retirement. That being said…
They also encourage the average American to throw the money they should be putting into secure investments for retirement, into the stock market. While people used to actually hold onto their own money in the security of cash, the 401k program puts that same money (and that’s a lot of money) in the risk of the market.
Take note of the temporary nature of this mechanism. When this new program was introduced the market price of everything got forced up to previously ridiculous levels. These new prices are, of course, not the fair market price but the government adjusted market price.
If the tax benefits don’t force you into the stock market than inflation certainly should. While the average person used to be able to get away with saving cash for retirement, these days the value of cash is dropping too fast for that.
The federal reserve as been printing away the value of money ever since America left the gold standard.
Using an excessively low 2% inflation rate, $10,000 turns to $8,200 over 10 years. That’s a fifth of the value of the savings disappearing. (That 2% inflation is claimed by government officials. Using traditional methods of inflation measurement it’s closer to 5% leaving you closer to 6k.) With fiat currency losing value that fast, it’s virtually impossible to save for retirement without putting your money at serious risk. To break even the average person will need to gain at least 2% a year. (Probably closer to 5%.)
“It’s All Good! More money for everyone!”
In the short term, it certainly is a good thing for investors. In particular, it’s really good for the investors involved before the government started propping up the price. Everyone after that just got forced into paying above market value for the same stocks and mutual funds.
Government can’t magically increase the value of these stocks. It can only magically increase the price. A discrepancy between the value and the price is a problem because the price discrepancy will someday cost someone a lot of money.
The average professional investor is not going to be the one paying the price. They can remove themselves from their stock positions relatively easily. The average American doesn’t have that option. Their money is now in a market they don’t understand, they can’t effectively move around in, and they’d have to pay a fortune to get out of.
The major losses of this propped up stock market are not going to be going to the people that made money from it in the first place. Everyone else is going to be paying that price.
RUN FROM THE MARKETS!
Nope. Don’t panic. It won’t do any good. Government is not only encouraging you to invest, it’s virtually forcing you into it. Unless you have a better option to invest in, you should (probably) still be putting your money into this dangerous market. It’s one of the only places you can make up for inflation without having significant experience. That being said:
Don’t go into the markets blind. If you have money invested then pay attention to it. Watch it like it’s being held by the least trustworthy bank in the world. You can get a good return on it but understand the markets your investing in. You’re the only one that can prevent yourself from getting slaughtered with the crowd. (Look into investment insurance through options. It takes quite a bit of time to learn but it’s worth it.)
Gold is real currency. While fiat currencies values always collapse eventually, you can expect the value of gold to be relatively stable. It can take some short term rides up and down but it will be worth about the same amount of value over the long term. This applies to all the major metals.
That being said, you can’t expect the money you put in gold to grow. It’s not supposed to grow. If the value of gold goes up 5 times in US dollars then expect the cost of everything to go up 5 times. (It’s not that simple but it’s a simple way to think about it.) Physical gold is not an investment (unless you are trained to use it that way.)
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