Lulu called her Dad for a quick loan last week: her car transmission just went out, and she needs her car for work. She has appointments she drives to every day.
“Well, I don’t have anything to loan you, dear girl,” he said. “What I have saved for you in my retirement and 401k has dwindled down quite a bit this year. So why don’t I just give you some of your inheritance portfolio now instead…”
Lulu was in shock. Yes, she’d get some stock and mutual funds her dad had planned to leave her anyway, but now her inheritance, which she’d counted on when her dad passes, well, it’s down 80% from last year.
Since she needs extra money right now, she has to cash out fast before they lose more of their value. Plus her dad is in a fix wondering how he’ll get on himself…
Average people who have saved for 20, 30 and 40 years, and put it into stocks and other “safe” funds find their next egg is suddenly 80% gone. Anyone who invested in GM has seen 90% of the value disappear. There are hundreds more.
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It helps to have your investments based on real goods.
I’ve heard people who lived through the Great Depression describe stocks as “paper money”, something created out of thin air.
Consumable items are usually best, something where people buy it, use it up, and have to buy it again.
Toilet paper isn’t glamorous, but I wouldn’t want to try and live without it!
A major part of the problem is because the governments of our countries has left the responsibility of financial education primarily to mutual fund and other large financial institutions. Their education primarily teaches people to invest in the investments that they offer.
For instance, the classic case of diversification. In theory it’s a good idea but in practice its terrible because they typically refer to diversification as being invested in different mutual funds, which is still the same asset class.
As the old saying goes “If you think education is expensive try ignorance.” Millions of people are now finding out the hard way how expensive financial ignorance really is.
It is a shame how more and more people are going through these rough times. It is time we all join together and help the ones who need it most.
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I think the issue here is that people have a false sense of perspective in terms of what a “safe” investment is. They think mutual funds are safe because they are diversified, but when the whole market goes down….the funds have to go down.
That is just part of the investment “game” in my book though..without risk there is no great reward.