With all the craziness in the world, both socially and economically- we need to get some perspective on the long term viability of our economy and the stock market as a whole.
There are two very different ways to view our economic future.
- For those of you who invest in stocks, you’re basically saying, “I believe the American and world economy will continue to grow and develop as the years go by.”
- By not investing in stocks you are basically saying, “I believe the economy is going to be decline indefinitely.”
Let’s take these two thoughts to their logical conclusions.
For those of you who believe that we are going to continue to advance as a culture, there are some valid reasons.
The Human Spirit
I think we can agree that these reasons make sense. You believe that the economy will continue to grow, and naturally, your standard of living will improve. Remember, we have 200 years of history that prove this exact point. The Dow Jones was 68 in 1900 and it is now 23,000.
By investing in stocks, you are getting on board with the most brilliant and driven human beings on the planet.
The Other Way
For those of you who say, “I believe the economy is going to decline for many years.”
Your rationale may be:
Unstable geopolitical situations
The Great Depression Part 2
Innovation has reached its peak
We are just waiting for the world to collapse
If you fall into the second category, let’s take it to its logical end.
If ten years from now the economy has not advanced in any way- with no innovation or societal improvement, it would be the first time in 200 years of American economic history.
But let’s say all your fears come true. Wars rage, markets collapse, and we start to decline back into a time that looks akin to the Great Depression: mass unemployment, food lines, homelessness.
Now, at this point, the banks are in trouble too. Remember, if nobody is able to pay back their debts, banks start failing. If banks start failing, people start to lose their savings. There would be a run on the banks. There would be rioting in the streets as citizens attempt to pull their savings. ATM machines would not work. Banks would lock their doors. Martial law would be declared.
FDIC insurance? It doesn’t mean a thing in this scenario. There is no way the government can fulfill its promises.
Would the stock market dive in this scenario? Of course. During the Great Depression, the markets went down 80%. The only way the markets could go to zero is if every publicly traded company went bankrupt. If that were to happen our world would truly devolve into anarchy.
What about if you put your money in “guaranteed” products like life insurance or annuities? Same problem. Those promises are only as good as the companies who make them. You would lose everything.
So, in a way, in this doom and gloom scenario, those of you with money in safe investments could lose everything. But those with their money in the stock market might actually walk away with something. It happened during the Great Depression.
So, ironically, those who had their money in “risky” investments, may end up with more than those who had their money tucked away safely in banks.
The next logical step would be that society is wiped out. We return to tribes and gangs fighting for territory. Food, water, shelter, fuel, and weapons would be the most prized possessions. Gold would be worthless. Paper money used as toilet paper (Due to Covid-19, I guess some of us are almost to that point now).
At that point, does it matter where you had your money?
All of this to make this point: You are investing in the stock market whether you are or not. What do I mean? If the stock market dives for ten years or more, we are in economic chaos with banks failing and hyperinflation. Either way, you lose money.
If the stock market and economy improves you will get far greater returns than money in the bank.
We are at a point in history, where everything is based on the stock market. Either go for the ride and reap the benefits, or only utilize “safe” instruments that become worthless if the markets completely collapse anyway.
So what do you believe? Will America continue to change the world for the better or falter permanently? Own stocks or stay “safe.” You need to decide.
Myself. I believe in America. I believe in the power of capitalism and democracy. I believe we will keep growing, keep innovating, and continue to make life better. I believe the stock market will continue to grow as it has for hundreds of years.
I refuse to bet on economic Armageddon. Anyone betting on that has been every time. I’m going to live my life with a sense of opportunity. Not a sense of fear.