Is Investing A Big Fat Lie?

Do you feel screwed? If you have invested in stocks or real estate for years, you sure do. I know I do. We draw plans for the future and believe that by being disciplined, spending less than we earn and investing carefully we’ll be able to be financially free some day. Last few months it seems there is not much hope for that, doesn’t it?

Big Fat Lie
Photo by
Close to Spectacular
at Flickr

It could mean that we are wrong in general

It could mean that investing is a big fat lie spread over and over again by people who manage everything – you know that some manage to make a lot of cash even from recession. Maybe the “live frugally and invest wisely” mantra is just plain wrong.

It seems that I am not the only one who thinks that. People just want to do their work and receive something in exchange. But instead of that we must all become financial experts and follow the market news every day just so we don’t lose all our savings due to inflation.

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Or we could be investing in the wrong things?

I think there lies the answer. Most people are trying to speculate the markets by investing in various financial instruments instead of investing in value. Forgetting that money is just an abstraction which represents wealth people are looking for investments that will bring them money in the future. Now this causes recession because apparently a lot of the money earned in the world turn out to be “fake” – i.e. not aligned to real wealth. A great example of what happens when money and wealth and not synchronized. Even more spectacular example can be seen right now in Zimbabwe with the hyperinflation.

But I don’t think that investing is a lie, we just do it wrong. If you want to get it right, you need to get back to the roots and answer the question what exactly is the point to invest? For me investing means to put aside part of the wealth I generate now (and get money in exchange for) and use it in the future when I may be unable/unwilling to work and produce more wealth. I don’t expect multiplication of this wealth (except if I have invested in automated income systems), but at least I hope it to remain on the same level. I try to look at investing this way instead of a way to “earn money”.

The problem however is that we can’t directly store the wealth we have now for 50 years later. You can’t store 20kg of rice or ham for such long time (even if you could, storage would cost you a lot) and you definitely can’t store a ticket for cinema or a journey booking for 50 years. Instead of that we can store money or financial instruments, which unfortunately change their abstract value all the time and are hardly predictable.

The “right” investing is in value

I.e. instead of trying to find out which commodity will raise its price next year you should, ideally, invest in things that will have value 20, 30 or 50 years later. Of course that reduces your chances for big fast profits, but we are talking about investing and not trading.

What investing could be that? Probably some of the following:

  • Stocks of companies with good future. Of course stocks will always remain risky but if you look at companies which are fundamentally valuable, you’ll see they survive the crisis. See GOOG for example (they are also losing in 2008 but their loss is too little compared to most). Such stocks will not make you easy profits but at least will protect your wealth.
  • Real estate that you use. If you have bought your home 5 years ago without mortgage loan you wouldn’t really care that the prices are falling today. You are having a home – you have bought it at a time when you had the money. A home for personal use will always remain one of the best investments you can make – provided that you have the money to buy it cash though.
  • Business. If you have a business the global financial collapses will have negative effect on it – that’s almost granted. But if your business is based on providing what people want, you’ll survive and be back on the ride when the recession is over.
  • Investing in yourself. Do not spend your wealth in financial instruments if there is room to use it for self improvement. That’s the single, best and evergreen asset you can obtain.

Speculative investing might be dead or dying right now, but investing in real wealth will always be actual. If you can avoid following fashion trends and can distinguish what is really valuable, you should be able to survive even the worst financial crisis.

Jake