Investing For The Breaking Of Impossible Promises (1 Minute Article)

By Daniel R. Amerman, CFA

(The video below takes about two minutes to view, the transcript can be read in about a minute.)

(Transcript)

I'm 50 years old, and I've known for a long time that Social Security and Medicare won’t meet their promises to me.  We all know it.  That’s why we’re told to load up our retirement accounts with stocks.

The current dividend ratio of the S&P 500 is about 2%.  We’re hoping for 8% or better annual returns, and the difference is that we’re counting on share prices increasing because corporate profits are increasing.  Generally, most of the value of a stock isn’t based on profits today, but this expected growth in future earnings.

But, the problem is the private economy isn’t growing, but rather it’s shrinking rapidly as the government's share of the economy grows. During the last two years the private economy shrank by 1.3 trillion while the government grew by $1 trillion, as the government share of the overall economy went from 35% to 43%.

We have a government that made impossible promises. Trying to keep these promises means the government that takes an ever greater share of the economy. Which arguably collapses the current value of stocks because the government takes all the growth and then some.

So the irony is that we have many millions of people investing everything they have to survive the breaking of impossible government promises, by buying investments that radically increase their risk exposure to the breaking of impossible government promises. 

Does that make sense?  Or should we be doing just the opposite and seeking out strategies where the worse the situation gets, the better our investment strategy performs?  So we seek financial security by offsetting our risks instead of doubling them up?

Do you know how to Turn Inflation Into Wealth?   To position yourself so that inflation will redistribute real wealth to you, and the higher the rate of inflation – the more your after-inflation net worth grows?  Do you know how to achieve these gains on a long-term and tax-advantaged basis?  Do you know how to potentially triple your after-tax and after-inflation returns through Reversing The Inflation Tax?  So that instead of paying real taxes on illusionary income, you are paying illusionary taxes on real increases in net worth?  These are among the many topics covered in the free “Turning Inflation Into Wealth” Mini-Course.  Starting simple, this course delivers a series of 10-15 minute readings, with each reading building on the knowledge and information contained in previous readings.  More information on the course is available at DanielAmerman.com or InflationIntoWealth.com .

Contact Information:

Daniel R. Amerman, CFA

Website: http://danielamerman.com/

E-mail:  mail@the-great-retirement-experiment.com

This article contains the ideas and opinions of the author.  It is a conceptual exploration of financial and general economic principles.  As with any financial discussion of the future, there cannot be any absolute certainty.  What this article does not contain is specific investment, legal, tax or any other form of professional advice.  If specific advice is needed, it should be sought from an appropriate professional.  Any liability, responsibility or warranty for the results of the application of principles contained in the article, website, readings, videos, DVDs, books and related materials, either directly or indirectly, are expressly disclaimed by the author.

Copyright 2010 by Daniel Amerman