A question that arises often both in personal finance circles and casual financial discussions is the age old, “What is the safest investment I can make?” The very sight of this question, generates feelings in some with passion as strong as asking them what they think about the president.
If one person says real estate is the safest investment, another will retort with, “but what if the housing market crashes?” If another person says the stock market, someone else will ask, “but what if the stock market crashes?” Still someone else will mention bitcoin. The real estate vs. stock market debate may be one of the oldest and most hotly debated in personal finance, but sometimes, a cautious (and maybe even paranoid) investor will throw a wrench into the discussion by pointing out, not so irrationally, that both of these investments depend on the current economic situation staying more or less the same. Sure they fluctuate, but, almost always, time wins out and there is a reversion to the mean. The problem with both of these investments is that they fall apart in the face of catastrophic economic meltdown or a fundamental change in the structure of the economy: they are both dependent on growth.
What is the safest investment?
So then, if we factor in economic apocalypse to our “financial” security (using financial in quotes because finance may be irrelevant in this type of situation), what is the safest investment? Is it gold? Silver? I think not. After all who really cares about “precious” metals after an apocalypse. There’s not much inherent value, aside from use in electronics. Then if it’s not precious metals or real estate and stock, what is it? My answer is non-perishable food and clean water.
In fundamental societal collapse these things are essential because they sustain life. Now at this point many are already starting to throw tomatoes and say, “Food and water isn’t an investment because an investment is something that’s made in expectation of a return.” While I wouldn’t disagree, in a fundamental societal collapse non-perishable food and water could produce a return that approaches infinity, only this return comes not in the form of money but in the form of bargaining power, as money would presumably become worthless – unless it’s cash, which might work pretty well to start a fire.
It makes us start to think it’s all about the money.
If we don’t consider the fact that we may have to expend resources to protect our food and water from thieves, these items would be priceless in an apocalyptic scenario. After all the definition of wealth, at least according to Robert Kiyosaki of Rich Dad, Poor Dad, is [shortening it a bit], “the number of days you can survive without physically working.” While I don’t feel thinking about apocalyptic economics is super useful outside of this little thought experiment (although some think it’s not so far off), it does point out a potential problem with the accumulation of wealth for financial stability. It makes us start to think it’s all about the money.
There’s nothing wrong with wealth accumulation for the purposes of early retirement or just retirement in general. The problem arises when we start to become consumed with the idea. We become obsessed with saving every penny and all of a sudden lending money to a friend or family member becomes undesirable for us because it means maybe we’ll have to retire later or we won’t be able to max out the old 401(k). In a nutshell, we become greedy misers. Suddenly, we get the strange urge to pick up that penny in the parking lot before that homeless guy on the corner notices it. Again, wealth accumulation isn’t inherently unethical, but if our ideal is an arbitrary “financial independence”, how do we know when enough is enough? After all the purpose of saving money is for freedom and so that we can enjoy our lives and escape the “money game.”
This is why I like minimalism.
This is why I like the philosophy of minimalism, coupled with Stoicism. Minimalism leads naturally to frugality, which when practiced correctly teaches one to only buy what one needs. Do you really need that ultra-cool, U-shaped, 3D TV that you can watch from around corners? My guess is probably not, but if you don’t have a nice life philosophy like Stoicism or minimalism to talk yourself out of ridiculous impulse-buys, maybe you will sign up for that new credit card to finance the TV that you didn’t need in the first place.
While I’m not suggesting anyone try to live like a caveman, if hunter-gatherer society is our ideal then at least we know what we’re shooting for. “Wealth” can be achieved with no money at all – and hunter gatherers only work about 14 hours a week. We humans are pretty bad at reaching goals if we don’t have a quantifiable goal in mind. If wealth accumulation is the goal, we can accumulate wealth, but that goal has no logical end because there’s no limit to how much money we can accumulate. It’s another “chasing the dragon” situation. This is one reason that billionaires still try to accumulate more wealth even though they already have plenty. The caveman is the ideal of personal finance because cavemen can survive without money, and this should be our ideal, to minimize not maximize.
They’ve allowed their lifestyles to inflate.
The other reason billionaires try to accumulate more wealth, though, is that while accumulating wealth, they’ve allowed their lifestyles to inflate. Although most people could easily survive several lifetimes with a billion dollars, a billionaire’s lifestyle is expensive. Hey, those Dom Pérignon’s aren’t gonna buy themselves. These billionaires can’t stop investing because if they did their lifestyles would catch up to them. If they had instead decided to be minimalists, they could be on a beach drinking coconut water with no worries other than getting an uneven tan.
If we start from minimalism and hunter-gatherer society, we can create a baseline, an ideal. What do we need to live comfortably? From there we can find out what we need to remain living that life indefinitely. Hint: it’s not a billion dollars. I know most people (including myself) couldn’t go back to hunter-gathering and be happy. We’ve already tasted the good life. But ignorance is bliss, right? Those already doing it should keep-on keeping-on. As for us, we should recognize what amount of money we need to live on and then seek to accumulate wealth only to sustain that lifestyle for a period of time without work, not to buy a U-shaped TV.
Sam
Trader Joe