Is It The End Of The Line For Stock Investments?

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End of the line

I receive a fair number of videos, emails and articles about the coming financial crash. It is always nigh. It is always imminent. And it always involves getting out of the stock market.

Here is the Third piece of advice given by those anticipating a financial and societal breakdown:

3. Get out of paper.

If by “paper” they had meant “fiat paper currency” i.e. US dollars I would agree with this advice.

Most of the TEOTWAWKI (The End Of The World As We Know It) scenarios begin with the claim that the Federal Reserve is printing money like there is no tomorrow. The Fed is doing this in order to devalue the dollar so that they can pay off the national debt with a devalued currency. If the Fed is increasing the money supply then they are devaluing the purchasing power of the US dollar. This should cause inflation even if official measurements of inflation are artificially low.

At least one way to think about inflation is that inflation is a tax on those foolish enough to hold US dollars while the Fed is devaluing the currency. For this reason, limiting your investment in paper currency is a good idea. Especially limiting currencies that are being actively devalued such as US dollars, Euros, and Yen.

Unfortunately, getting out of paper currency isn’t what is meant by this end of the world advice. They want you to get out of everything which is on paper: stocks, bonds, etc. In fact they make the claim that your IRAs, 401(k)s and mutual funds will all be worthless. And they make the claim that if you are 50 years or younger you won’t see a dime of any of your retirement money.

It isn’t clear exactly how the value of these securities would become worthless. Somehow inflation, deflation or derivatives will crash the global financial systems and make these merely “paper” investments worthless.

It doesn’t make any sense.

If you own a piece of property outright, you own that property by a piece of paper called a “deed.” If you own your car you own it by a piece of paper called a “title.”

If you own shares in Vanguard Real Estate ETF (VNQ) you own these shares on paper as well. But what you own are shares of ownership in publicly traded real estate investment trusts which own piece of property by means of pieces of paper called “deeds.” Similarly if you own shares of Apple, Coke, Disney, Exxon or Ford you own a piece of their companies as well.

There is no reason why even a global financial crash should change your ownership in shares of publicly traded companies. And if those companies are diversified over a global portfolio they are also insulated against the turmoil of a specific country.

3. Diversify your portfolio across the stocks of many different countries.

Photo by Ruud Hilgeman used here under Flickr Creative Commons.

See also all the articles in the How To Prepare For The “Coming Financial Apocalypse” series.

Follow David John Marotta:

President, CFP®, AIF®, AAMS®

David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.