THE OLDER I GET, the more convinced I am that saving and investing is equivalent to war. Specifically, World War I and its horrific trench warfare.
Certainly the past few months have felt like trench warfare. One day, we take a trench and make money. The next day, we lose it and our gains from the day before. The day after that, we lose several more trenches, and soon after regain them again. In the end it will prove a winning battle -- for the market has always gone up -- but in the short term the only winners are the rats. In this case the rats take 20 pc of the profits and annual management fees around two percent, growing big as dogs in the process.
But this present nastiness will someday end, even if it takes longer than we might hope. True, it is not guaranteed -- if the Black Death returns or hydrogen bombs vaporize the developed world, then we're sunk all around and we'll all have more pressing concerns than our investments. But barring a major disaster, it will turn -- there is nothing in history that suggests that will not be the case. Population growth creates wealth. Technological advances create wealth. Industrial production creates wealth. The development of new goods and services creates wealth. Wealth itself begets wealth.* It has always been and it will always be so.
The trouble is, no one knows when this will happen. It may take one year, or three, or five, or ten. It may have great pitfalls along the way. But it will happen eventually. As a result, my strategy -- as painful as it is right now -- is to hold the line on my investments and continue plowing money into my dollar-cost averaged accounts. If it pays off -- and I make no guarantee that it will -- then I should eventually have a handsome profit from these activities. It is a comforting thought, even as I log into my retirement accounts each day to see just how bad the damage has been. True, I could retreat from my positions, but my fear is that doing so would cause my retreat to turn into a rout. Instead, I've decided to hold the line.
-----------
* Wealth begets wealth, but one must be judicious in how one approaches that, as an Old Story -- I think it was one of Andrew Lang's -- illustrates.
Long ago there was a well-off merchant who happened across a wise man, and the wise man promised the merchant he could greatly increase the man's wealth. The merchant was naturally intrigued, and entrusted the wise man with his money accordingly.
Some time later, the merchant paid a call upon the wise man. "Behold," said the wise man, "look upon thy gold coins, for they have married coins of silver." The merchant was duly impressed with the increase in his wealth, and he bade the wise man continue with his plan. A year later, the merchant returned to find his wealth had increased even further. "Behold," said the wise man, "thy gold and silver coins, joined in matrimony, have beget children of copper." The merchant was overjoyed.
Five years later, the merchant returned to the wise man, downright giddy with the thoughts of how much money he would have after five years had transpired. But when he arrived at the wise man's abode, the wise man looked at him, puzzled. There was no money for him. The merchant was horrified and demanded to know what had happened. "Alas, my lord," said the wise man, "I am sorry, but your coins have all passed away."
Posted by Benjamin Kepple at June 11, 2008 10:21 PM | TrackBack