I
have now rounded off a couple of years of occasionally studying
personal economy, how to get money and how to handle them. I was
occasionally afraid of becoming a money-motivated person, but the study
was necessary for the simple reason that they don't teach these
essential subjects in school. (I sometimes think this is because the big
financial institutions (as well as the short term economic
health of the system) depends on spending and an indebted population,
in the crazy debt-based economy of today.)
One
thing I have learned is that beyond the basics outlined above (and even
those you can find plenty of controversy about), nobody agrees on
anything. Just when I thought I had something pinned down, in the next
book I read they would say the opposite. What does this mean? It means
that you are on your own, basically. You have to study and decide for
yourself what is true.
Furthermore,
if you hope to
do really well with money, you have to keep at it. You have to know a
lot, and you have to know what is going on all the time. Just one
example: it has become clear to me that while one might do well
investing in individual stocks, it takes a hell of a lot of knowledge
and work to do so. And even the experts regularly make huge mistakes.
(70% of managed mutual funds do worse than the overall market!) (Which
is why index funds is a good option, they follow the market and have
very low fees.)
Honestly,
I had hoped to get to a point where I could do well investing without a
lot of continued study and worry. But I have not found that point, and
I don't think I will. And since 1) I don't have nerves of steel and 2)
I really am not all that interested in money, I have decided it
is not really worth it for me.
The
attention I have to put on it has to come from somewhere. And I would
rather put that attention on where I like to have it: on production,
and on art, philosophy and spirituality/metaphysics. And on
communication and fun. I suspect even economically this will pay off
better for me, not to mention spiritually and emotionally.
One
should have an idea whether one is interested in investing or in
speculating. Much of what's called "investing" is actually speculation,
including the stock market often. The difference is as much in the
purpose as in the type. Speculating, even with the best research, has a
marked component of gambling, one takes a risk in the hope of a gain.
Investing is interested in minimum risk (which can be hard to evaluate)
and with putting one's money to good use in the world. It is long-term,
usually. But even a "minimal risk" also has some element of gambling.
Even
the best solution I have found in investing, index funds, would take my
attention. Because when the market as a whole goes down, I would lose
money. And while historically it has paid off on an average, there has
been periods where it took many, many years for the money to even come
out even. (The 1930s and the 1970s.) It has also been pointed out that
modern economic growth only happened in the last few hundred years, and
may be a freak period in longer historic terms.
So
I decided that "investing" as such is just not worth it for me, except
if I have a little "wild money" and a clear Buying Opportunity offers
itself (a market is temporarily under-valued, for example by fear). So
I have pulled out and just gone to the best savings accounts I could
find. (And it pays to shop around.) And it might not hurt to diversify
here also, even though these are supposedly 100% safe. Banks do go
under sometimes. Use a couple of different institutions, and get some
precious metals too, in bullion, not paper. Gold went up dramatically
in the seventies, slanted down from 1980 until the millennium, then
started gaining again. This might be seen as a "defensive investment",
or insurance in other words, something to have if for instance a
currency collapses or during a high-inflation period. Study it.
I
recommend coins like Krugerands or Brittanias rather than bars or rare
coins. They are the easiest to value and therefore to sell. (And in
Britain today, coins like Brittanias and Sovereigns are sales-tax-free
because they are "coin of the realm".)
By the way,
get the bullion in your own possession, in a safe place. Don't trust
bullion banks who say that they actually store the gold for you, there
are stories that they operate just like banks, that the "gold" they
take money for on paper is maybe 100 times more than the physical gold
they actually hold. The legality of this is a very grey area, but guess
who can buy the best lawyers?
Even this took a
little bit of courage: what if the stocks I didn't buy go up? That is a
missed opportunity. There is just no way one can be certain. One has to
make a choice. And my choice personally is to make as much money as I
can without working more than I like, and live well beneath my means,
and put my surplus in the best savings account I can, and forget about
it, and concentrate on my work and my life. And also, while I have no
scruples being a capitalist (making money from money), I still consider
it more interesting to make money from actual production and value, so
that is where I will put my attention.
When people
tell you that you should expect double-digit returns on your
investments, don't believe them. Anytime you get above maybe five
percent (and that's before inflation), you get into risky waters. If
you like risk, that's fine, but you must be aware that you're taking it
on.
And never invest more than you can afford to lose,
even if it seems like a "sure bet". Some of my friends have lost their
shirt this way, even some I thought were the most careful people in the
world.
One must realize that the economy can't grow ten
percent per year (after inflation).
If it does, there's some kind of bubble. Why? Because money is based on
real products, and the overall system of factories, transport methods,
workers, education, etc, just can't grow that fast.
In
other words, unless you're a gambler, you'll just have to face that a
couple percent per year above inflation is all you are likely to get.
Those "the miracle of compound interest" calculations based on ten
percent are BS. After a while I just settled down knowing that.
Update
early 2010: this article was first created around 2006, and at that
time it was easy to find a savings account giving good returns, and
inflation was low. If that had continued, I'd be happy as a saver
still. But now I'm a little uncomfortable, because since the 2008
credit crunch and subsequent events, there's no interest to be had, and
money printing has exploded, which may lead to high inflation. So of
course careful savers are being punished for the crises that
irresponsible loaners/lenders created. I still haven't found a secure
way to even keep up with high inflation if it occurs though. (Except
get a bit into precious metals.)
Don't feel obligated
to give or lend your money to anybody. Yes, it is a pleasure to help
and it has healing power to reach out to others, but only if it is
voluntary.
Unless one inherits great wealth, these
are issues one simply has to deal with somehow. And how one does it is
a personal choice.
In Harry Browne's book Fail-safe
Investing,
I found a refinement to the worry-free savings principle I favor. Harry
recommends four different kinds of investment in four equal parts,
where each part responds differently to different economical climates,
and the end result is an evened-out steady growth, and very rarely any
loss. If one is worried about the stability of currencies, banks, and
governments, that book is recommended, as is perhaps The
Alpha Strategy, though parts of that one only applies to
high-inflation times/areas.
Update 2012:
I was asked: None of the people recommending gold mention the
possibility of a gold bubble. The price has been pushed high by
speculation, rather than any intrinsic value. There is a massive supply
compared to actual demand for industrial or jewellery.
Well, this is all true. And gold *could* certainly drop in value again.
But I think that it will only do so if the global economy corrects and
grows more and more sound pretty rapidly, and that seems, sadly, very
unlikely.
Some people may buy gold as speculation. This would have been very
smart in the years just after the millennium. Now, I think it's a 50/50
chance.
BUT: another view is to get a 10-20% portfolio of gold as *insurance*.
If the economy goes up, gold will fall, but probably not fast. Then
your other assets will go up. If the economy goes down, other assets
will go down, and gold will go up. It's a strong balancing factor.
It's true it has no intrinsic value, but paper money has even less so!
They have only trust in banks and government. With gold, the trust is
based not just on a government, but also on the metal itself, which has
almost always, almost anywhere, been good, solid money. Gold has been
high and low (around the millennium it was quite low, but it took two
decades to get there), but it has never been zero, or anywhere near.
If I was put in a time machine and had no idea in which country or in
what time I would arrive, I'd bring some gold Sovereigns! (Quarter
ounce British coins, they say it's the most well-known in the world.)
A few coins in a bank box is something you may keep always and give to
your heirs, which would be great, but it is also a last-ditch hedge
against collapses of banks, governments, and paper money, something
which has happened many times even in living memory.
Have fun, and godspeed.