On September 22, 2021, US regulator Gary Gensler told college kids that passive investments can consistently earn a safe 8% return over the next 45 years.
I remember when they told me to buy a house so I’d have financial security. One year later, the housing market crashed, leaving me $100,000 underwater. It took 13 years for that property to go back to the price I bought it at.
Now they say the stock market can’t crash, the Fed will never let it. An entire generation of Americans depends on the stock market for their retirement and, by extension, the continued growth of our economy. They continually deposit trillions of dollars each year into retirement accounts and wealth management funds without even looking at what they’re buying.
Roughly $26 trillion in household wealth sits in these accounts, generally with 50–60% exposure to the stock market. And that doesn’t include pensions that have a not-insignificant share of the market.
So you have an entire workforce putting or keeping money in the stock market, essentially on autopilot.
Those equities remain dangerously overvalued based on almost every historical benchmark. At the same time, average dividends are the lowest ever recorded and publicly traded companies sit on the largest pile of debt in history.
No wonder the boomers tell everybody to buy stocks. Their wealth depends on it.
These same people think crypto’s a risky investment. Good!
Usually, financial ruin comes from safe assets, not risky ones.
When you feel a sense of complacency or security, only to have it ripped away through circumstances beyond your control. When everything seems like it can’t fail, and then it does.
For example, some of the biggest global financial crises came from “safe” investments:
- 2008 — US houses
- 1997 — high-growth emerging market economies
- 1929 — US stocks
- 1873 — gold and railroads
What “safe” assets have risks you’re not thinking about? Here are a few:
- The stock market. It always goes up — until it doesn’t.
- A house. It’s the American Dream — until you can’t afford to pay the mortgage.
- Bonds. They offer safety — the safest way to lose your purchasing power over time.
- Gold. It’s a great hedge against inflation — except for any time after the 1970s.
- US dollars. They’re the global reserve currency — and designed to lose value forever, except against other currencies that lose value faster.
This world is full of risks, often where you least expect them.
There are no sure things in life, but that doesn’t mean you should stuff your cash under a mattress and pray for better times.
You have to take risks with every investment. It can’t hurt to acknowledge that truth and accept those risks. If you’re going to do that with bitcoin, why not everything else?
Growth is slowing in almost every major economy. How long until that trend threatens the world’s post-COVID recovery?
China’s dealing with major financial problems while balancing a 300% debt-to-GDP ratio. What happens if its government slips up?
A demand shock has overwhelmed supply chains almost everywhere, causing shortages across the board and sending the prices of many goods and services so high that some industries have nearly ground to a halt. What if it takes years to resolve?
The US government will run out of money in a few weeks. It may shut down tomorrow. What are you going to do if either of those things happen?
Rent and housing prices far outpace wage growth in most advanced economies. Can that continue?
On top of that, $17 trillion worth of the world’s wealth remains locked into negative-yielding bonds, with another $6.4 trillion sitting in junk bonds from unprofitable businesses that pay less than the rate of inflation.
That’s $23 trillion in otherwise-productive capital, guaranteed to lose value.
Meanwhile, bitcoin’s yielded 200% growth each year on average forever and remains in a long-term, secular uptrend.
And you think crypto is the risky bet?
Ok, no problem. Go back to 2007 and buy a house in the US. Best investment you can make!
Until it isn’t.