” It will not last. »
“It’s all in a bubble. »
“It’s going to collapse. »
” Wake up ! »
In finance more than in any other field, pessimism is seductive. Whether it’s a pundit on TV or the neighbor around the pool, people who anticipate disaster seem both visionary and altruistic. As if they were knocking on our door in the middle of the night to warn us that flames were threatening our house…
For example, a reader wrote me the other day a little panicked email.
“Given the inevitable (and well-documented) decline of empires, what would happen if the US dollar were no longer the currency of choice for international trade in the future? We think of China and the yuan in the future… The next “empire”? […] The debt of the United States is so big, it cannot last…”
The problem with this reader’s concern is that it’s more worn out than the transmission in a 1986 Toyota Corolla, my dream car.
For generations, people have been banking on America’s decline, with good reason to do so. For generations they have lost money almost 100% of the time.
Yes, the United States’ debt is high and, yes, the United States will not lead the economic world forever. But U.S. Treasury bonds are among the lowest interest rates in the world. What it means ? Quite simply, investors around the world are not worried about Washington’s ability to pay its bills. Neither today nor in 10, 20 or 30 years.
Will China ever supplant the United States at the head of the world economy? No idea, but that’s why we should invest not only in Canada and the United States, but all over the world1.
And then, what tells us that the rise of China and Asia would produce what this reader imagines?
The British Empire no longer exists, and the pound sterling has long since ceased to be the currency of the globe. But the UK remains one of the countries with the highest quality of life in the world. And UK equity returns have been 5% above inflation per year on average for 119 years2.
See the system fall
Sometimes pessimists are right. American investor John Paulson, for example, rose to fame after betting on a real estate debacle in the late 2000s in the United States.
His bet has earned him billions, and books and movies have been made about his life.
How has it been for him since?
Paulson made a big bet on gold, a bet that turned out to be catastrophic, with the price of gold lower today than in the early 2010s, when Paulson was interested in it.
In short, the worst thing that can happen to a pessimist is to be right, since this validation will color their judgment and decisions. As psychologist Abraham Maslow said: “When the only tool you have is a hammer, it’s tempting to treat everything like it’s a nail. »
The reason I have a hard time with pessimists is that things tend to get better over time. In short, the human experience, which is light years away from being perfect, is better in 2023 than ever before.
Nearly 2 billion humans lived in a state of extreme poverty in 1990. There are less than 800 million in this situation today.
In 1990, more than 12 million children under the age of 5 died worldwide. This number has fallen each year to 5 million today – far too high a number, but at least the trend is clear.
To be honest, I have already been fascinated by pessimists. There’s something satisfying about seeing a flaw in a system you don’t particularly like, extrapolating from that flaw, and imagining that it’s going to bring everything down.
The problem is that we are generally not the only ones to see this flaw. Millions of people also see it. And so the fault is not one.
But this is not an acceptable answer for pessimists, for whom there will always be a major problem hidden somewhere… In short, you can never win this game.
All this to say that we don’t fear good things in finance.
Your neighbor who is worried about the future of the United States should be alarmed by not maximizing his TFSA. Or not to invest in his children’s RESP to seize the thousands of dollars handed to him by the government. Or not to make regular investments, no matter the experts’ prognosis, no matter whether the markets are up or down.
These behaviors have a direct and tangible impact on enrichment.
But it’s difficult, if not impossible, to put them into place when our minds are captivated by the fall of empires.
Your money books
I asked you earlier this summer to send me your suggestions for books about money. Many of you did so, and the book most often cited was the bookstore mega-success sold more than 26 million copies, Rich dad, poor dad by Robert Kiyosaki. “This book is about getting rich, the difference between needs and wants, the importance of buying small pieces of companies (stocks), writes Michelle. I have been applying the learnings with my daughter ever since she started speaking! Now, at 13, she spends moderately and is thinking about buying her first condo in college. »
Lilianne says she really liked the book. She invests by Karman Kong, who I interviewed earlier this year3. “We will not hide it, the world of investment is still dominated by men, and we could even say that this world is misogynistic. This book is not only pleasant to read and accessible, but it deconstructs the prejudices that investing is only a man’s business. »
Finally, Gabrielle recommends the book Beat the Bank by Canadian author Larry Bates. “This book made me see how expensive the management fees of mutual funds sold in branches of Canadian financial institutions are and produce virtually no return,” she says. I fell out of my chair! »