Paper Wealth Is Vanishing Into A Big Black Hole

Authored by Bruce Wilds via Advancing Time blog,

Few people watch their investments daily but rather chose to peek at them every now and then. This is the main reason a lot more Americans are not waking up today sick to their stomach and in near panic from the devastation markets have wreaked upon their savings as trillions of dollars have vanished into a big black hole. After the carnage in the market today a young gal told me the market would jump right back, she knew this because her boyfriend, also rather young, worked for an accountant and knew about these things. Most likely they think this because in their short lives they have never witnessed anything but a market that always rapidly recovered and moved ever higher. This is the basis of, “buy the dip” which has been a market trading mantra for years and years.

The sad reality is when markets fall they sometimes do not come back. The article below looks at the damage and pain being foisted upon some average Americans nearing retirement.  Back in early 2017, I penned an article that delved into the subject of high-earning Americans, where their wealth came from, and just as importantly where it was stored. This got me thinking about the so-called wealth effect as well as how all that wealth was held. Many of the really big earners in recent years have benefited greatly from the surging stock prices as much of their income has come from financial markets and gains in equities. This also is true for the many working Americans that have invested in a 401K and other savings instruments.

[ZH: Global aggregate bond and stock paper wealth has crashed $25 trillion since Feb 21st and all global gains from stocks and bonds since the Dec 2018 lows have now been erased…note that bonds are still up just over $5 trillion, hedging against the just over $5 trillion losses from stocks]

Wealth Can Rapidly Vanish

Imagine the shock this morning of a fictitious couple named Joe and Jill Average that are nearing retirement with a net worth last month of around 250 thousand dollars when they check to see how they are doing after hearing “murmurs” the market has slipped. If three-quarters of their nest-egg was in the market, they will be horrified to find that the mere pullback of stocks in recent weeks has ripped away over 60 thousand dollars or around 25% of their wealth.

Rising markets have become the pathway to a better future for many people. After more than a decade of rising stock prices, many people have come to assume this is normal and the trend would continue. When people have more than they need or want to put money away for a rainy day where do most store it? For many people, the answer is into some form of intangible investment that promises good returns. When rating people on a “wealth chart” by how many tangible assets they own you might be shocked to find much of the wealth people own is in the form of intangible assets that can be full of risk.

Safely Storing Away Wealth Not Always Easy

In our modern world, the possibility of cyber-crime or cyber-theft raises the risk to even a higher level but an even greater example of how wealth can rapidly vanish into a big black hole is evident in the recent stock market action where trillions of dollars are now simply gone. Paper wealth can be viewed as a promise of future value. Unfortunately, this leaves much of society and many rich individuals vulnerable to rapid financial loss if the tides of fortune shift or if values rapidly change.

Currently not only are we faced with banks paying little in the way of interest but we must also fear they or the government might reach in and seize part of our money. By adopting policies that spurred people to pull their money out of banks and other safe investments in search of higher yields we have driven up stock prices. Some of these stocks have reached unbelievable multiples.

People often do not understand money and wealth. Myths about both run rampant and become intertwined with deeply rooted personal feelings acquired or passed down from parents. These feelings often muddy and skew how people deal with wealth. An example would be anyone who felt deep down that money was the root of all evil would react to winning the lottery far differently than someone with the belief that you can buy happiness. I have even heard poor people say they didn’t see much point in buying a ticket for a lottery of  several hundred thousand dollars because “that’s not much money” Today the use of the B-word “billions” is so prevalent in society it is understandable many people live with distorted values.

Annuities, pensions, stocks and such promises of future payment tend to dominate the list of favorite vessels in which to store wealth and many of these are leveraged to maximize returns and garner higher yields on our investment. Cash is another option but holding it in your possession leaves one open to theft and means the money will earn no interest. What is often missing or overlooked is tangible fully paid for items and things that are likely to hold their value and in the direct possession of the owner. People tend to avoid tangible assets in their control because they are often inconvenient. Valuables can be a pain to have about and they often need to be insured which also calls attention to their existence.

Truth be told most people are not overly endowed with discipline this includes many people that amass a fortune. This often means that many wealthy people tend to “misplace” or lose track of where they have placed their wealth. Sometimes it is simply put into a system that is on autopilot. Years ago I purchased a property from a doctor on contract. The doctor having also bought the property on contract had me send the payments to the man he purchased it from so he would not be bothered. After many years I contacted the doctor to discuss a discount for a cash payoff and his accountant discovered the first seller had been paid off years before but continued taking the money. Needless to say, the doctor was shocked and getting his money back proved difficult.

When you subcontract out control of your wealth or turn it over to a money manager you often get promises but no ironclad guarantee. Confidence in a money manager can quickly be dashed, all the people invested with Bernie Madoff discovered just how suddenly things can go south and promises turn hollow. While it has become both fashionable and common in recent years to let someone who knows and specializes in financial planning and markets to control this segment of our lives I feel it is a big mistake and a dereliction of duty. If wealth came with a warning notice it would say, “Holder Beware, This Commodity May Vanish, Spoil, Or Grow Obsolete At Any Time!”