Aug 28
Off-blog I’m e-mailing with Commenter Carl about investment in these turbulent times.
Here is what I see coming:
- rampant decline in the value of the dollar
- dramatic increases in income tax
- removal of caps for payroll taxes and increase in rates
- equalization of capital gain and income tax
- much higher retirement age for IRA and other type accounts
- low growth in real estate
Does anybody have an investment strategy for dealing with that? Other than Costa Rica or knocking off convenience stores?
August 30th, 2009 at 9:40 am
Of course, there’s always a sure investment strategy for a known future, and a man of your certainty can take advantage of that certainty. Inflation: TIPs, gold and other commodities, money market funds. Higher income tax: tax exempt securities. Higher payroll taxes – not an investment issue. All economic income treated the same for taxation: we’ve been there before. Declining dollar: foreign securities and foreign currency denominated instruments; just be careful in picking the foreign currencies. Higher retirement age: already ongoing but not an investment issue. Low growth in real estate: not consistent with high inflation; as money gets cheap, assets gain value and demand; you can always live in your house regardless of its market value.
Of course, your certainty is a myth since you cannot predict the future well enough to have high confidence in any particular investment. On the other hand, you cannot prosper by curling up in the corner with your money and cursing the world. Your best strategy is an investment mix that is likely to keep your purchasing power no matter which way things break.
You might also spend some time with economic history to see that we have already experienced all these things from time to time and we still lead the world in economic power. Most recently, we moaned the same tune in the 1970s. Bet on American optimism and adaptability with people like you. And I see no reason to pick any other country as a better bet. They all have their problems which are in some measure driven by the American economic situation. If we go down, we will take the others with us.
Costa Rica? Great coffee, no Army, and Abigail was mugged within an hour of hitting the street. Switzerland, very clean, doesn’t allow citizenship, and is very expensive. Argentina, a much favored escape place, has political instability and economic uncertainty like ours. Northwestern Europe? The source of our culture, high taxes, socialistic in your eyes. Norway and Canada: too cold.
The bottom line is that we have lived beyond our means for some time and made promises that we cannot keep. Restoring balance is going to be messy and not helped by carping from our best people. Stay poised and alert to adjust to the game.
August 30th, 2009 at 1:15 pm
So I’m a carper. I’m the guy who is going to fix it. I’m just asking those that broke to stop from breaking it more.