The Times They Are a-Changin’

Bob Dylan put the thought in our mind 57 years ago. Maybe times are always changing. You should think the idea through in terms of your investments and your future.

Economics

Economics teaches us many things. Among them are the importance of incentives, and disincentives, tradeoffs, substitution, and limits.

If you follow Nick Maggiulli, you will have seen his article. Are we Craving Risk or Losing Reward?  I think he has a point but is expressing it in non-economic terms.

We are more appropriately avoiding the disincentive of low returns, and substituting the uncertainty of risk. That’s true if we  accept investment idea of risk. Everyone is doing it or surrendering income and growth. But craving risk???

No one craves risk

What we know is people will substitute risk (that’s a tradeoff) to avoid low yields. That some do it thoughtlessly is a critique of the internet gurus and many advisors. That it is necessary is at the feet of profligate, selfish politicians.

People work with the hand they are dealt. The current hand is difficult to optimize with any certainty and given the current penchant for inflation, holding cash is foolish too.

To assume people are now seeking risk is to ignore the substance of the problem.

Will it resolve?

Of course it will. Although it is unlikely to resolve in a way that is acceptable to the people. The new normal will be very unlike the old normal. Why, because the rules have all been broken and no new rules have replaced them. With the exception of the rule that says the government can and will do whatever it wants.

Since, the governments incentives are quite different from the people’s incentives, we can expect that to end badly for the people.

The fantasy of government wisdom and competence is believed by some. Maybe a quarter or more of the people. Those talents will not be in our future. Unchecked, governments, like people, revert to their worst presentation of themselves.

The takeaway

Be alert and build some flexibility into your plans.

Push back when and where possible. We do not have to succumb.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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