Imagine yourself 5 or 10 years ago. If someone had told you then that their investment in a plain-jane money market account would outperform your portfolio of any reasonable combination of equities (small cap, large, value, growth, international, REITs, etc.), would you have believed them? I would have estimated the odds of that to be <1% and told them to take off their tinfoil hat.
Yet we find ourselves in that situation today. Not to mention some other extraordinary events: - Mortgage contracts are being unilaterally written down by judges.
- Bonuses are being retroactively confiscated by the government with no due process.
- The Fed's balance sheet will soon exceed $300,000,000,000.00.
- Effective nationalization of large companies in critical industries (banks, automakers)
All the rules seem to be changing daily. No matter how safe I try to make my investments today, it seems I am placing a bet on how things will turn out. Even things like Treasuries, cash, or TIPS could be terrible investments over the next 10 years, depending on which scenario comes to pass. So I can't opt out. But my ability to predict the next 10 years isn't any better than it was 10 years ago. So how am I supposed to make prudent decisions for my future welfare?
Maybe I'm being too post-modern about all this, but "before" when you invested, you could identify the biggest risks (the "known unknowns") and either accept them, or pick a different investment. Now, it seems that the biggest risks you face are impossible to classify or quantify (the "unknown unknowns").
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