Why Money Management Will Have to Change, Part 2
Will the principles of money management change in the future? Are they changing right now?
We started this conversation month's ago and it kind of slipped through the cracks, but we'll continue to explore this important subject in coming months. The idea here is that we have to change the way we manage our money because the economy and the financial markets have changed in fundamental ways.
For now, let's turn to something Bill Gross recently said. Gross manages more bonds than anyone. He's a founder of PIMCO, a large investment managment firm. He's quoted all the time and appears on MSNBC often.
In a recent letter to his investors, Gross talks about how to stay rich in the new world that is unfolding as a result of the bursting of the credit bubble and the government deficits now in place - deficits that will grow and last at least another 10 years, under current policy. He quotes Will Rogers from the early 1930's (the heart of the Great Depression), who said he wasn't so much concerned about return on his money as return of his money.
Of course, being a bond manager, such a philosophy is self-serving. After all, bonds guarantee a return of your money upon maturity. And Gross is notorious for "talking his book" - a Wall Street phrase that boils down to promoting his own interests.
But in spite of all that, I think he's right. And it's not because I think we're in or will be in a Depression (I'm not saying we won't either...it's just not certain at this point, one way or the other). I think Gross is right because 1) people have lost a boatload of money recently; 2) in new era of thrift and frugality we're entering, people won't want to risk losing their money in order to make a killing in the market.
On the other hand, more people are under pressure to get a high return on their money in order to gain back some of what they've lost. And some of them may have made up some of their recent losses in this recent stock market rally.
Now, if the stock market heads down from here, that may convince people that taking risks with stocks just isn't worth it. People will focus on cash and bonds. Richer people will add in some "alternative" investment strategies by giving some of their money to hedge funds, or invest directly in businesses or real estate (and yes, real estate investing opportunities should begin showing up in the next year or so).
What about the idea that we're in a new bull market for stocks? If the stock market continues up it will draw more and more people in. I'm concerned about that because I just don't see this as a real (primary) bull market right now. It looks more like a bear market rally.
We'll continue looking at how money management will change and what that means to you in coming posts.
We started this conversation month's ago and it kind of slipped through the cracks, but we'll continue to explore this important subject in coming months. The idea here is that we have to change the way we manage our money because the economy and the financial markets have changed in fundamental ways.
For now, let's turn to something Bill Gross recently said. Gross manages more bonds than anyone. He's a founder of PIMCO, a large investment managment firm. He's quoted all the time and appears on MSNBC often.
In a recent letter to his investors, Gross talks about how to stay rich in the new world that is unfolding as a result of the bursting of the credit bubble and the government deficits now in place - deficits that will grow and last at least another 10 years, under current policy. He quotes Will Rogers from the early 1930's (the heart of the Great Depression), who said he wasn't so much concerned about return on his money as return of his money.
Of course, being a bond manager, such a philosophy is self-serving. After all, bonds guarantee a return of your money upon maturity. And Gross is notorious for "talking his book" - a Wall Street phrase that boils down to promoting his own interests.
But in spite of all that, I think he's right. And it's not because I think we're in or will be in a Depression (I'm not saying we won't either...it's just not certain at this point, one way or the other). I think Gross is right because 1) people have lost a boatload of money recently; 2) in new era of thrift and frugality we're entering, people won't want to risk losing their money in order to make a killing in the market.
On the other hand, more people are under pressure to get a high return on their money in order to gain back some of what they've lost. And some of them may have made up some of their recent losses in this recent stock market rally.
Now, if the stock market heads down from here, that may convince people that taking risks with stocks just isn't worth it. People will focus on cash and bonds. Richer people will add in some "alternative" investment strategies by giving some of their money to hedge funds, or invest directly in businesses or real estate (and yes, real estate investing opportunities should begin showing up in the next year or so).
What about the idea that we're in a new bull market for stocks? If the stock market continues up it will draw more and more people in. I'm concerned about that because I just don't see this as a real (primary) bull market right now. It looks more like a bear market rally.
We'll continue looking at how money management will change and what that means to you in coming posts.
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