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Don't Panic!... yet.

I am far from alone in thinking that American finances, as currently structured, are completely unsustainable.  That doesn't mean we are all doomed, or that your dollars are worthless.  What it does mean, hopefully for rest of our lifetimes, is that our personal finances (the real economy) have decoupled from monetary and economic policy.  The practical consequence for most of us is that headline figures like unemployment, GDP, and most importantly inflation only matter to big corporations that now hold most of societies' capital; they have little relevance to the working and consumer class.  For most of these people, it is no longer enough to work and save.  They MUST also lend in order to earn return on any excess capital they can manage to get, or else their savings are devalued. 

Tragically, Wall St. and the banking system have turned the most efficient and flexible means of lending to the best entities (enterprises that are actually creating value) into a game that is largely rigged.  The prime opportunities are often only available to venture capitalists in private offerings.  Safer options with less growth are packaged into bonds offering paltry returns to accredited investors.  In the middle sits a bloated investment industry with more capital than the underlying companies that are supposedly being served can actually put to practical use.  The only way for the large financial institutions to make an acceptable return on their capital under such circumstances is to focus more on sales than research while creating and trading volatility.  This creates opportunity for smaller, fundamentally value-focused investors like me.

Things could eventually get Very Bad if governments continue to manage matters as they have, especially in America if a viable alternate global reserve currency emerges.  However, that is probably still decades away and then all bets are off.  Hope springs eternal on the macro side, but I have little expectation for improvement in the near term, mainly because I think we've reached a point where one can't fix the real economy without breaking the market or vice versa.  As a result, I think the lifestyles of many Americans have only just begun to change.  When their government preserved the status quo by bailing out large financial institutions which had made bad bets, it prevented not only short-term economic pain, but the sort of creative destruction necessary for any meaningful recovery. 

In the meantime, it is madness to simply earn and hold depreciating capital in exchange for little to no return.  Hard assets like real estate can be very good options, but they are often too chunky for many beginning investors and thus involve debt that can have extreme consequences during the associated boom and bust cycles.

So What to Do?

What to do now is to continue to enjoy life while living within your means and seeking return on whatever excess you have.

Three ground rules first: 
  1. This is about how to keep, grow and best use excess money that you have.  If you have net unsecured debt, you need to get rid of that first.
  2. Good management of any type of investment takes time and understanding.  This is why those with experience will often advise beginners to leverage the experience they already have by investing in what they know.  The critical piece that is often missing for many stock investors is an understanding of the markets themselves.  Some basic lessons there can make all difference between financial success or failure on an otherwise correct insight.
  3. My background gives me a good understanding of technology and the workings of the market.  I now make my living solely from investing since the rewards multiply with success rather than scaling linearly with effort.  I'm sharing my thoughts for the purpose of education and discussion, not telling you what to do, or what I'm doing.  If I speak well of an investment, it's a fair guess that I'm putting my money where my mouth is.  Furthermore, I have the ability to do things, like write options and keep money in arbitrary currencies, which are not available to the average retail investor.  As such, I generally will not waste time talking about things that most people can't do.  If you want to be able to do them, talk with me personally.
With that out of the way, there are two ways to grow the money you have: yield and speculation.  Speculation is buying low and selling high, or selling high and buying back low, if you're short selling.  Yield is getting your cut of the profits made from the venture you've put money into.  In reality all investments have some element of speculation due to the risk of default.  Stocks which do not offer a dividend are pure speculation.  You should always be willing to lose a substantial portion of any money you put into such a venture.  I  try to address both aspects in my service, as well as tying them to a specific price range and time frame where possible.