Economic crash : who wins , who looses

[JPC]

hey was wondering

when there's an economic crash, like the wall street crash
who looses money , that's the most evident, the actioneers
but who wins money ?

because in a logic, if one person looses money, someone must be gaining money
unless if a crash causes a decrease of the total world money (litteraly destroying money, like if cash had been burnt)

 

[russ_watters]

because in a logic, if one person looses money, someone must be gaining money
unless if a crash causes a decrease of the total world money (litteraly destroying money, like if cash had been burnt)

In fact, wealth is not a zero sum game. Everyone (for all practical purposes) can simultaneously win and everyone can simultaneously lose.

What keeps the economy going is the flow of money. If the flow accelerates, lots of people win. If the flow decelerates, lots of people lose.

 

[turbo]

In a crash, the people who lose money are generally those whose assets are liquid. You pay the price for easy conversion in a crash, because your assets will be devaluated as the crash progresses. You can hang in and hope that a rising economy will increase the value of your holdings, or you can be a contrarian and buy like crazy when you see nice investments that are depressed in value by the crash. The latter course can make you a lot of money, though for steady (and sometimes explosive) long-term growth, real estate is pretty darned nice. After all, there is a finite supply of it.

 

[JPC]

oh ok

and what's the saffest way to store your money ?

a land ? (but a land can loose value)
a house ? (but the house can be destroyed )
in a mixture of all kinds of money (US dollars, euros, ect) ?

 

[Ivan Seeking]

I am not an economist, an investment expert, or rich, but I have opinions none-the-less.

I'm a big believer in land purchased at a good price. Or course this would not include land purchased in hyper-inflated markets using a variable rate, interest only loan.

Also, gold.

 

[turbo]

Land purchased at fair prices will perform well long-term, and depending on local variations, can be leveraged into nice gains. I would advise against gold, and I would warn you to run away from diamonds, since de Beers can crater the prices with no notice.

 

[Ivan Seeking]

Land purchased at fair prices will perform well long-term, and depending on local variations, can be leveraged into nice gains. I would advise against gold, and I would warn you to run away from diamonds, since de Beers can crater the prices with no notice.

Why don't you like gold?

 

[turbo]

Why don't you like gold?

Because some currencies are tied to the gold standard, and when a currency tanks, speculation can lead to some wide fluctuations. I would rather invest in something that has tangible value in the real world. Gold is nice, useful stuff but it does not compare with real estate for stability and long-term growth. It can be an inflation hedge against short-term fluctuations, but I don't own any of it, aside from jewelry scrap from stuff I have repaired, etc. Land is a limited resource, and it cannot be created, though some large holders can dump a lot on the market and create some localized devaluation. It is the best bet for long-term appreciation, IMO, though I try to stay relatively liquid (in part to be prepared for attractive land offerings).

 

[Ivan Seeking]

Re gold, I was thinking more of protection during a crash, but in a global economy like we have today, your point about global fluctuations is a good one.

 

[russ_watters]

In a crash, the people who lose money are generally those whose assets are liquid. You pay the price for easy conversion in a crash, because your assets will be devaluated as the crash progresses.

Maybe I'm missing something, but don't you have that backwards? Cash loses value due to inflation. The Great Depression was precipitated by a stock market crash where the losses were in less liquid assets. Inflation never got very high during the great depression. Gold is also pretty liquid (it is a lot easier to sell than a house if there is a depression) and does well in inflation.

 

[russ_watters]

oh ok

and what's the saffest way to store your money ?

a land ? (but a land can loose value)
a house ? (but the house can be destroyed )
in a mixture of all kinds of money (US dollars, euros, ect) ?

Define "safest". If you throw your cash directly into a safety deposit box, you will likely never have any risk of losing any. If you use a savings account, it is government insured, so you won't lose any of it unless the government goes bankrupt.

But is safe really wise? Your money loses value by sitting in a savings account because of inflation. So the safest investment isn't necessarily the best.

The S&P 500 hasn't lost value over any 15 year period in it's history and has averaged about 12% growth per year (before inflation). That's pretty safe, over the long term, and it gives a great return. I don't have enough money for a complex investment strategy, so that's where I have most of my investments.

I'm 31 - economic advisors will tell you that due to the long-term performance of the stock market, that's where you need to put your money when you are younger. As you get older, you lower your risk by investing in things like CDs and bonds (but not Bonds), which are government insured. Some people even have a formula that uses your age to calculate a ratio of stocks vs insured investments.

Real estate is subject to cycles and local effects too, but people often like for no more complicated a reason than that if the economy goes in the crapper, you can always live in your investment!

Bottom line: "safe" is an incomplete question.

 

[russ_watters]

Why don't you like gold?

Gold is essentially a scam investment. The only people who should own any gold as an investment are those with a ton of money who don't mind having a little of it be lazy just in case there is another 1929. For everyone else, despite what the advertisements and spam say (rule-of-thumb: if you hear about it from spam, it is probably a bad idea), gold is a terrible investment. It is a commodity and a pretty stable one, so the best you can do with it is match inflation. More likely, you'll lose compared to inflation (as technology improves, the intrinsic value of gold decreases).

Protection against a crash is not the primary concern of the average middle-class guy looking to turn his IRA into something he can use to play golf every day 30 years from now.

 

[JasonRox]

You need to be diversified. That's the safest. It can never be overrated.

Also, I mean diversified globally and not just investing in US firms.

 

[Jimmy Snyder]

Gold is nearly worthless. We have a repository of the stuff in Ft. Knox that has been sitting there unused and untouched for decades. Imagine an ingot of aluminum being treated like that. It is an expense to keep it guarded. Someday people are going to realize that a pound of iron is worth more than a ton of gold.

 

[JasonRox]

Gold is essentially a scam investment. The only people who should own any gold as an investment are those with a ton of money who don't mind having a little of it be lazy just in case there is another 1929. For everyone else, despite what the advertisements and spam say (rule-of-thumb: if you hear about it from spam, it is probably a bad idea), gold is a terrible investment. It is a commodity and a pretty stable one, so the best you can do with it is match inflation. More likely, you'll lose compared to inflation.

It's not clear cut with natural ressources. If gold finds another great use, then the price will go up. Same with Uranium which is skyrocketing. I believe Copper is doing very well too, and I wouldn't be surprised if Nickel has been doing well over the years.

There is no straight answer as to... buy or not buy gold. I think if I had a lot of money, I would own gold that's for sure. Or even diamonds. Yes, people talk about that company, but eventually that company might have a signature cut so it can be separated from the naturally made ones. So, the man made diamonds won't be priced as high. Just like the coin collecting world, no one buys cleaned coins, maybe people who can't afford the real stuff. Same thing will happen with diamonds. Rich people will only want to buy the real stuff and the man-made stuff will be in production for the middle class. Hey, a diamond is a diamond right? Just like a coin is a coin. Or a painting is a painting. If anything, wait until de Beers starts production, diamond prices will drop, buy diamonds and then they will go back up again. The wealthy and the collectors will not let the de Beers diamonds get mixed with the real natural diamond. That's for sure.