Sunday, August 3, 2008

Realistic Expectations

There was a story on Barron's website last Friday by Randall Forsyth entitled 'Finance Has Become The Business of America' which was very interesting and thought provoking. An illustration of this would be that the financial sector as a percentage of the broad stock market indices has been rising over multiple decades. Furthermore, clearly the economy has been moving from a product and manufacturing one to a services (including financial services) one. That is a real risk of course when financial markets turn sour - and it makes a case for making sure that markets are functioning - sometimes at a high cost.

For us as savers and investors, what is important to remember is that saving and investing is a complement to working and making money (and not a replacement) - as ultimately it should provide a means of setting aside money, perhaps and ideally even tax free, and letting it grow. It is not about getting rich quickly in most cases - and taking on too much risk with this short-term goal in mind, as opposed to the facts about saving and investing definitely a bad idea with potentially very bad consequences, as market corrections like the one in housing right now can demonstrate.

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