I learned to drive very late - I was 29 years old. After decades of urban living, I'd never needed a car, so I didn't learn until we'd moved out to the country. I've never liked driving, mostly because it struck me just how bizarre the whole thing is. When I was finally behind the wheel, I realized "wow, big metal things driving towards each other at 60 miles per hour just seems like a bad idea." And, of course, it is a bad idea for thousands and thousands of people who die or are maimed by cars every year. Nor is it good for the huge percentage of the population killed by pollution (40%), much of which is created or enabled by cars at some point.
But most of the time we get into our cars and we get there alive. That still seems very odd to me - because even though I've done it a thousand times, driving still seems crazily risky to me. It turns out that people are a lot more competent than my gut would expect, and that there's a lot more resilience in the driving system than one might expect. There isn't as much as the most enthusiastic advocates of the open road would like you to believe - in fact, driving is really dangerous, far more dangerous than almost any other ordinary activity. But neither is it as scary as it looked to me when I first got into a car.
Now I regularly get emails and posts requesting that I give my opinion on the state of the stock market, whether to liquidate your 401K, how and whether to plan for college and a host of other financial advice I'm totally unqualified to give. I generally ignore these questions, not because they aren't real and legitimate, but because I honestly don't know how to answer. I can tell someone what I do, or what I've read, but I feel even less qualified to advise here than usual. My basic take on the stock market is the same as my basic take on driving - it seems crazy to me that everything would work as well as it does, so I'm probably not the person to expound enthusiastically about the possibilities of any particular investment.
And part of the reason for this is that I don't quite understand why the free market system works even to the extent it does. That is, I understand why economists say it works, but any close look will point out that the claims economists make about rational choices and market resilience don't tell even half the story. For example, during the five years as housing prices have risen, I've been assuming that people would stop buying houses that cost half a million dollars for a suburban ranch on a postage stamp lot, rather than continue to do so. I'd assumed that lenders would stop loaning huge amounts of money for houses that couldn't possibly have the value they were appraised at, with almost no downpayment or relationship to the person's salary. And I assumed people would pause at taking out loans they could never hope to repay. I was wrong on all counts - and yet, I think my wrongness wasn't based on a failure to understand economics, but on a lingering hope/belief that we could never possibly be this stupid and irrational.
I was completely and utterly wrong - I've been waiting for the housing bubble to pop for several years now, and it hasn't, mostly because millions of people are saying the equivalent of "I do believe in fairies, I do, I do..." over and over again, in total opposition to the evidence against the fairy tale they are being told - that is, that their houses could ever in any long term, empirical sense have the value they are ascribing to them. What economists describe as "confidence" really turns out to be pretty much a collective exercise in wish fulfillment. And it can tolerate a few people opening their eyes and recognizing that this is a fairy tale, but at a certain point, boom, it all comes crashing down. When? Who knows - maybe right now, maybe in five years. I don't know, and I don't claim to. The case for "now" is looking more and more compelling to me, but the magic of denial is more resiliant than I would have ever credited.
The only reason I could possibly ever make any comments at all about the markets is that if you were to ask me, a Wall Street analyst and a Baboon to predict, beyond the level of common sense advice, what the market will do, we'd all have about an equal chance of being right. It turns out that almost all human beings suck and anticipation. Personally, given the choice between a market analyst who believes that growth can go on forever, and me, who doesn't understand how we got this far without exploding, I'd let the baboon pick.
Now my personal financial strategy is pretty simple. No debt, except mortgage debt, and get rid of that as fast as humanly possible. We save some money, save some for the kids college/setting up house funds, and the rest goes back into the farm in the form of new roofs, barn repairs, goat fencing, perennials, warm boots, down comforters, rechargeable batters, etc... I don't have a lot of gold or silver (a bit, mostly inherited), we have no major investments, and we tend to trust that our savings plus our willingness to work will get us through most crises. Honestly, I don't expect to retire - I think it unlikely that social security will be there for me, and so my basic hope for the long term is that I'll be able to adapt and make a little money growing food or medicinals, or teaching or writing, and that we'll get along with what savings we've got - assuming we have any by the time that comes. I might be crazy, and I'm probably missing a dozen opportunities, but given the present degree of market volatility, I'm a lot more relaxed this way.
The other reason I don't invest is that I believe that the origin of our economic problem is growth capitalism - that is, the debt based money system that requires that our economy grow always faster and consume more and more resources. If we don't change that, we'll never be able to live within the bounds of nature. But that means I want to participate as little as possible - to pay and receive as little interest as possible. What I make I'd like to be the profit of my own hands, and my own labor, not a system I deplore. The interest I want to live on is my own fair share of the natural resources of the world - the dirt I live on, the food I grow on it, the energy I produce from it. I'm not there yet, but seeking out a significant return in interest seems contrary to the basic principles I hold.
Now I'm not perfect, and my savings accounts do pay a little interest. I don't keep my money under my mattress, and I am no saint. But generally speaking, I stay out of the money game to the extent I can. It means I don't have as much, and I don't have as big a cushion as I might, and that's a price I'm prepared to pay right now. I tend to think that we were richer after the last crash, when our wealth came from *saving* not investing.
I'm going to be blunt - I don't think money we've invested will be there making you richer in the long term. Oh, some of us will stay rich, and some of us will get rich - I'd tend to bet that if you put your cash in oil wildcatting, electric cars for the very rich, tobacco, alcohol and prescription sedatives, you'll be able to weather all sorts of hard times, at least for a while. Video games and escapism will probably be big in bad times as well. But I don't necessarily want my money used for those purposes. I tend to think that if you deplore things, but still give them your money to play with, you have a small ethical problem.
And Lois McMaster Bujold's wonderful line "all true wealth is biological" resonates in my head. She was speaking of children, but this is more widely true - ultimately, our wealth is based on the natural capital we keep drawing down. My personal path to wealth is to enrich my own soils, to improve my own pastures, to plant more trees, and husband my land better, and then live off the natural divedends it provides, reinvesting for the future. I believe that this enriches the society as a whole, and my self and my family - it creates a wealth that will be reaped for generations, and, I hope, onto the future. If it doesn't serve me and mine, at least it will serve the world. I don't mean to romanticize it - my tax collector and the bulk food lady still mostly take cash. But at some point, our wealth depends on the preservation of what we have, not expansion and the concommitant destruction.
Most of us want wealth for the security it brings - the knowledge we could handle a health care crisis or a job loss, the ability to retire. And these are real and good things, and I'm drawn by the siren song of more and more for me and mine so that I need never be afraid again. But when would that be? A single cancer diagnosis will wipe out the savings of anyone but the richest. A pension fund scandal and a stock market crash, and many folks will be back to the traditional plan B of retirement - relying on help from my kids. No savings can endure a long term of unemployment. Few people's retirement savings are enough to keep them in assisted living their whole senior years - if you live too long, you are back to family again. As a single, and private person, one never achieve enough security to keep me safe - and what I do in the process of my accumulation often impoverishes others, denying them a measure of security as well.
Part of what I do is try and find other definitions of security - security is soil that can grow food, and family to rely on (and also family who will in turn, rely upon me), security is good work and a plan for continuing to work as my body grows older. Security is not needing much and having a strong community and a tradition of sharing that may return to me if I need it. Security is (and this is a difficult one for me) recognizing that I will some day die, and leave the world I love, and that nothing I do to be "secure" will spare me that inevitability. Security is supporting collective, public measures that improve everyone's security, rather than simply privatizing the meeting of my own needs.
The other part of this is recognizing that "security" is a construct, an attempt to master the world and have dominion over something I never made and cannot fully control. The notion that I can escape risk by being rich is part of the problem - because a world in which rich people preserve their own lives and well being first and foremost is one in which we cannot be generous enough to achieve equality, or fairness, or equal access to things like food and health care.
So here is my stock market advice - I have no idea what you should invest in. I don't know what you should do with your 401K. It depends on where you are and what you are planning. I don't know what the future holds or what anyone should do with their money. Except this.
I think all of us who have a little to spare should give more of it away. I think all of us should invest in natural resources, and take our divedends in soil fertility. I tend to think that buying the things you will really need in the long term is, if you can, wiser than waiting, and figuring out what you don't need is wiser still. Some of us won't be able to get much ahead, but a little stored food, a tool, educational materials for your children, shoes, a flashlight might provide a little security and a measure of comfort. But I would also remember that the flashlight will break, the tool handle will crack, the food will get eaten. The shoes will wear and the child will outgrow the materials. Real wealth is the ability to make a new tool handle, to sing in the darkness, to grow tomorrow's meal. It is the ability to fix the shoes and run around without them when the weather permits. It is the ability to learn from whatever situation you encounter, and to teach your children what you have learned yourself.
Now all of that sounds very nice, of course, but we still all have to pay the bills. And that's absolutely true. I don't want to get all fuzzy here about money, particularly since I have enough to eat and health insurance, and many people do not. I'm young and healthy and can work, and I know this looks very different from the other side. And, much as I admire her, I'm no Peace Pilgrim, walking with only the clothes on my back. It scares me to think of reducing my own security, of my children becoming vulnerable to an accident, to imagine that the cost of sharing things more equally in the world might be a closer acquaintace with death. But what choice do we have? If you read my blog for any reason other than to argue with me, you probably know that the days of your 401K, your investments returning enough to live on are probably numbered. I'm sure you can find a way to preserve some of that wealth for a poorer future. But that doesn't resolve the basic problem - that what you can do for yourself, your children won't be able to do, and your neighbor may not have enough to do, and that despite your best planning, we're all of us teetering on the edge of real personal insecurity.
What I do think I want to invest in, if we ever have the spare cash, is my neighbors. I'd love to see my neighbors start their own businesses manufacturing things that now come only from far away, or see young couples able to get farmland and start producing food. I don't know what, if anything, it would ever return to me. Maybe all the hoes I can ever use (the two I have were both bought at least 40 years old and seem set to go another couple of decades, so that isn't many) or a few peppers in season. Or maybe just better neighbors and more local security. I've been mulling over ways that my neighbors and I might do this - ways we might, as many immigrant communities have, invest in one another, providing interest free, or minimal interest capital loans to get started producing what we need.
For those with enough wealth to be investing in the stock market (I do not refer here to those who have minimal control over things like state pensions), I would recommend investing as much as possible locally. Many of the things you are "investing" have historically been the territory of philanthropy, but I think we all know better. This is called "covering your own ass" in a world where poverty is likely to be our norms. So I'd invest, say, in local free clinics, food pantries and poverty support programs. If you want a modest, but real return, try investing in reasonably price rental properties, making it possible for blue-collar people to live in your town and pay their rent and still have food. Invest in small scale manufacturers and combine with friends to form scholarship funds to send young people to colleges and help them learn useful things. Invest, that is, in the possibility of a real future, and your own place in it. I can't ensure that the returns will be anything impressive. On the other hand, neither can anyone else.
Look, I don't have any answers here. I know you want to retire, I understand that you need to provide for the future. Me too. All of us are tied into the economic system in ways that we can't quite extricate from, and all of us are standing, one foot in, one foot out, waiting to see what happens. All I can tell you is this. Here is what I am doing. Don't listen to my advice. And if you have to pick, take the baboon - I hear he's got a system.