February 13, 2010

Investing Without Wealth Or Calamity: The Finances Of Enough

"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." - Paul Samuelson

Individuals lucky enough to have a bit of savings are asking hard questions about their money after the 2008 financial collapse wiped out trillions of dollars of personal net worth. There is a move toward post-traumatic stress investing; a cautious, less greedy way of investing in order to avoid the kind of trouble we have seen lately. Such an approach will avoid extreme wealth as well as extreme calamity, both of which are unbalanced ways to live and best avoided.

It is a good time to be returning to a concept of 'enough'. Good-bye get rich quick risky business, hello slow and certain. My financial goal is not to get the highest return and damn the consequences. At one time people were satisfied with a modest return on investment. Any more would have been considered immoral at best, and illegal at worst.

Therefore, my No Extreme Wealth/No Calamity strategy focuses on:
  1. Reducing the potential for financial calamity. Higher risk investments pay higher returns, usually, but can also experience higher losses.
  2. Investments that improve global social and environmental health. I want to know that my money is supporting solutions rather then enabling problems, even if the 'dirty' investments pay a better return. Are my hands clean?

The following information, from David Trahair, agrees with a low risk strategy. In "Buy GICs. Only GICs." in The Globe and Mail, September, 2009, he points out the following average annual rates of return:

S&P/TSX Composite Total Return Index

  • 10 years to August 31, 2009 - 9.41%
  • 20 years to August 31, 2009 - 8.86%
  • 30 years to August 31, 2009 - 10.76%
  • 40 years to August 31, 2009 - 9.77%
  • 50 years to August 31, 2009 - 9.80%


  • 10 years to August 31, 2009 - 3.35%
  • 20 years to August 31, 2009 - 5.11%
  • 30 years to August 31, 2009 - 7.28%
  • 40 years to August 31, 2009 - 7.71%
  • 50 years to August 31, 2009 - 7.35%

The Wall Street Journal seems to agree about the reality of stock market investing these days. They reported that the first decade of the 2000s was the worst ever for American stock market investing.
"Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade."
Stuffing money under a mattress? Now there is an investment strategy that I can both understand and support. One will not experience riches, but one will avoid calamity. Without riches and calamity there is less potential for trouble. And trouble is something many people have been experiencing lately.

The returns of a low risk strategy may be lower, but you have to also factor in the ease of GICs, and the peace of mind you have when you step off the stock market roller coaster. You will not get rich, but you will also not lose 50% of your personal wealth over the course of several days in the event of another near-death experience for capitalism. Free market troubles are not close to being over yet.

For me a guaranteed, small interest rate is preferable to a large unearned gain that is harmful to all, and has the potential for massive losses.

No wealth, no calamity, no trouble. This works for me.

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