21st Century Investing and Occam’s Razor: The Best Investments Are the Simplest


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Not paying 19.99% is the exact same thing as earning 19.99% – Image by tnimalan

All right.

You’ve got a wife, 2.5 kids, a dog, two cats, and an annoying, screeching bird.

You live in a house that has lost a full third of its value over the past five years, and yet between two paychecks you are faithfully making the payments.

You’ve got a home equity loan you use to help finance vacations and other big-ticket items, as well as a few credit cards for day-to-day expenses, which you generally carry balances on.

You have two newer cars financed through the dealership, and you’re making student loan payments every month.

With all the mouths to feed and bills to pay, there’s just not much left over, but you put a modest amount in your 401k and deposit a hundred bucks into savings every month. Sure, things may be a bit tight, but you’re holding your heads above water, setting a couple of bucks aside for the future, and doing fine. Right?

In short, not really. One thing is for sure though: you’re not alone.

The Squeezing of the Middle Class

Even though the Great Recession officially ended in June, 2009, the devastation is still evident throughout the economy, not the least of which is how it has manifested itself within the average family budget. Per a recent CareerBuilder.com survey, 77% of Americans are either occasionally or generally living paycheck-to-paycheck. Furthermore, over half are saving $100 or less every month. Meanwhile, gas prices appear to be permanently in the $4+/gallon range, food and other necessities continue to spike upward, and with the ongoing massive printing of money by the Federal Reserve, it’s only a matter of time before broad-based inflation strikes. Along with inflation will come interest rate increases, which directly  affect variable-rate debt such as credit cards and home equity loans.

Times are tough, and  likely about to get tougher. In fact, some pundits believe that when this long economic malaise is finally over, economists very well may reclassify the entire period as a depression. Ok, so maybe just one bald guy with a mustache believes this, but it’s still within the realm of possibility — especially if rampant inflation and rising interest rates chop the tepid, stimulus-induced recovery off at the knees.

Knowledge is Power

It is vital that you become much more shrewd and knowledgeable about your finances. Precious few resources are devoted to this area in school, and as a result most Americans are unsophisticated with respect to money. Believing the investment tools utilized by the rich to be out of their reach, the middle class often cross their fingers, hold their collective breaths and hope that by the time they turn  old and gray, the numbers will somehow manage to come together on their own. During economic boom periods they can at least partially rely upon the rising tide to lift all the boats; in the new world order, the de-leveraging that must occur at both the micro and macroeconomic levels all but negates that possibility. For the indefinite future, the middle class is on its own.

So what to do? The middle class doesn’t generally have the capital for meaningful investments or the sophistication to safely take significant risk. The answer lies squarely within a nearly 700 year old philosophical principle.

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