How To Build Wealth In A Crazy World
The stock market in the U.S. is a roller coaster these days. In this contributed post, although in the last fifteen years, there have been a lot of craziness in the world, there are still ways to continue to build wealth (and well-being).
In 2008, we had the financial crisis, then came Trump's presidency ushering in the rise of populism and COVID-19. Currently, we're experiencing super high inflation (gas prices are about $6/gallon in Los Angeles), and most recently, Russia's attack on Ukraine.
For people trying to plan their financial futures, it’s confusing. Will there even be a future? Would you want to live in the world that’s coming when you see the sort of things that are going on in Ukraine?
A Look Back At History
The best guidance wealth is to look back at what has happened throughout history. Since 1950, there have been innumerable wars, conflicts, financial crashes and pandemics. Granted, those of the last few years have been quite unpleasant, but they’re not without historical precedence.
What's more, throughout all of that turmoil, people’s ability to build their wealth increased. As Warren Buffett likes to point out, if you’d invested $10,000 in a basket of US stocks in the 1950s, then it’d be worth more than $40 million today, well above the rate of inflation.
The reason for this is simple: when a societal system works, like the American one, it tends to build wealth. People work cooperatively with each other, and there’s a strong work ethic.
And while that might be waning among the domestic population, the US has been clever in supplementing its workforce with keen people from overseas. The economy remains productive.
How To Plan For The Future
When it comes to wealth planning, you have two options. You can either decide that the world isn’t going to improve in the future and throw caution to the wind, or you can continue trusting the system to work, no matter how turbulent things might seem right now.
There could potentially be cataclysms that destroy the value of your investments, but they are unlikely. What’s more, if they do occur, you probably won’t be around to notice anyway.
When planning, remember that life has always been turbulent. The period from 1990 to 2008 was actually quite unusual because of the relative peace and civility of the era (often called “the Great Moderation” by economists). Most other times in history have dreadful upheavals that occur with surprising regularity.
It’s also worth noting that we’re seeing a shift in the world order. The future is not going to look the same as the past. We’re seeing a movement of money and power away from the West (according to popular perception), and towards Asia.
Therefore, building wealth, as legendary Bridgewater Associates investor Ray Dalio points out, is still possible, but requires a change of tack.
The bottom line is this: the world will remain crazy so long as there are people. But the general trajectory is upwards, and that will likely continue for several decades yet.