What Investors Should Understand About Capitalism

The reality is that while the capitalism’s past few decades has made investors out of most of us, most of us don’t know how to be investors.  Being in the investment business for almost 30 years has given me the opportunity to work with many clients and to experience the breadth of emotions they experience by owning assets that fluctuate in value.

Part of my value to my clients is to help them understand the big picture when it comes to holding assets whose value changes constantly, sometimes dramatically.  One of the first concepts I explain is that we must assume that capitalism will be around for longer than we ourselves will be.  I go on to elaborate that capitalism is very much an experiment.  Theoretically, it could collapse the way communism did, as well as a number of other economic models, over the history of mankind.  If it does collapse, then it wouldn’t have mattered if you were invested in stocks or bonds or simply held cash.  It would all be worthless.  Our currency, you see, is not backed by anything more than faith.  Faith in the US government. Some people are surprised to hear that, thinking that the greenback is backed by gold.  Not so.  Not for a long time now.

Once we get past that notion we can look at the history of our system.  The twentieth century had offered us some of the most turbulent and cataclysmic times in human history.  Through it all, our system has been resilient.  So far, it’s flexed but never broken.

Building on that perspective we are more pre-conditioned to understanding portfolio investing.  This will make better investors out of all of us because it will remove a great deal of anxiety during market draw-downs.  If we know that the best thing to do during dark days is to sit tight and hope this isn’t the end, we are less likely to “get out now while I still have something left”.  That thought has done more harm to the wealth of our citizens than anything else.

If the system doesn’t collapse, it will recover.  It’s merely a matter of time.  Preparing yourself to endure those draw-downs without needing to sell low is the best way to become a good investor. 

 Scott J. Menta, CFP, CLU, ChFC

Scott Menta has helped many people make decisions through a structured planning process that focuses on meeting long-term goals. As a CERTIFIED FINANCIAL PLANNER™ professional at Barnum Financial Group, Scott has published numerous articles offering insights and guidance to individuals looking to create and manage their wealth. He can be reached at smenta@barnumfg.com or 1-877-GO-SCOTT.

This article was prepared by Scott Menta and is not intended as legal, tax, accounting or financial advice. Scott Menta is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC.  Member SIPC. 6 Corporate Drive, Shelton, CT 06484 The opinions provided above are not necessarily those of MML Investors Services, LLC or its affiliates.