Where Did All the Money Go?

10/13/2008 12:01 am EST

Focus: MARKETS

Terry Savage

Author, The Savage Truth on Money

Where did all the money go? That’s the plaintive cry as investors check the balances in the 40l(k) plans or individual retirement accounts (IRAs). 

Strangely, they never asked how the money landed in their account as stocks moved higher. That was taken for granted!

Well, don’t look around now to find out who has “your” money. It disappeared as magically as it arrived. It’s gone to “money heaven!”

We’ve turned ordinary Americans into portfolio managers of their own retirement plans without the knowledge, perspective, or self-discipline to make wise decisions. 

It shouldn’t come as a surprise that as prospects for the economy dim, fewer people want to own the businesses that those stocks represent. When investors rush to sell, prices go down—and the money represented by those stock prices simply disappears.

And it shouldn’t come as a surprise that markets go to extremes on the down side as well as the up side. Now it’s not just the financial stocks or the “risky” stocks that have fallen 20%, 30%, or more. Now, even the “good” stocks, the ones you’d planned to hold forever, are showing huge losses caused by “panic selling.”

Our readers at MoneyShow.com are a sophisticated group. You’re not surprised that money can be lost as well as made, without either a tooth fairy that arrived to deposit a windfall in your account, or a grinch that “stole” your asset value. 

Of course, you know that losses are possible—and that no one is profiting from your loss (especially now that short-selling has been banished—and that only accounted for a relatively small portion of volume). And, of course, you diversified your assets appropriately, so you’ll have cash to buy bargains when the time comes.

You can do that because you’ve had a financial education. But if we couldn’t even teach our children the basics of credit and debt, should we be surprised that workers have no idea how markets work?

We live in a country that decided it could charge the American dream on a credit card or buy it with no money down. So perhaps it shouldn’t be surprising that ordinary citizens are looking around for a villain in the market decline.

Of course the revelations of Wall Street excess in recent hearings add fuel to that fire. A CEO can’t quite decide if he earned “only” $350 million or half a billion! Bailout money is used for a posh resort retreat including spa services. Years from now they’ll be writing books about these excesses.

But even so, will we also be looking back with longing to a time when markets made decisions instead of government bureaucrats, when companies were privately owned instead of having government as a key shareholder, when home prices were decided by buyers and sellers, and not by “arranged” mortgages?

Our economy is changing and so are our priorities. What do you think the history books will end up saying about this boom and bust of the new Millennium—and about the new economic policies that being enacted? Your thoughts? Please join the conversation.

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