Is It Really Free??

There has been a movement in America that socialism is ok. Especially among the younger Americans. These young people have been promised among other college education…free health everything it seems like. It sounds great until they learn that they will be paying for all these ‘free’ things for the rest of their lives.

These young people believe that corporate America is evil. These corporations have some kind of privilege not available to everyone. They believe that corporate America is corrupt.

Former British Prime Minister Margaret Thatcher
Former British Prime Minister Margaret Thatcher (Photo credit: Wikipedia)

Along comes Bernie Sanders to the rescue. He will ‘give’ to everyone everything these corporations have unfairly taken from them. The Federal government will come to their rescue and make everything ‘fair’.

These young people believe there is no need to work because the government will ‘protect’ them. Somehow these liberals believe all corporations are corrupt and Bernie Sanders and his followers are not.

Socialism to them is the answer. However there are costs to socialism. As former UK Prime Minister Margaret Thatcher said ‘The problem with socialism is that eventually you run out of other people’s money’.

What seems ‘free’ now will be paid back in the form of higher taxes for everyone. Each taxpayer will be paying back for these ‘free’ benefits regardless of whether they used the ‘free’ things or not.

As an example Denmark has the system Bernie Sanders wants to install in America. The result is a minimum income tax rate is 40% which goes up to 80%. The tax to buy a car is 150%. That means a $20,000 car in the U.S. will cost someone in Denmark $50,000. As a result few people in Denmark can afford to buy a car.

Just to do a little more math, if you buy a truck for $45,000 in the U.S. it would cost $112,500 in Denmark.

What appears ‘free’ ends up costing you and your fellow citizen’s big time over the long term.

Capitalism has brought more people out of poverty than any ‘social’ program ever developed. Of course, capitalism is not perfect, no system is. However Capitalism represents and develops motivation, innovation and prosperity.

With capitalism some win and some lose. Most successful people lose many times before they win.

The problem for investors is that no one can tell you who will win and when. Because someone has failed in the past does not mean they will fail in the future. Conversely, if some succeeded in the past there is no assurance they will succeed in the future.

In the financial services industry I am required to add this phrase to any performance results. ‘Past performance is no indication of future results.’

Morningstar rates mutual funds by giving 5 stars to the best performers and no stars to the worst. Morningstar has said their 5 star funds system does not mean these funds will repeat. The star system has no predictive ability.

Let’s embrace the capitalist and enjoy its long term benefits.

Investors can take advantage of this by investing and not speculating.

Remember if your adviser has you stock picking or market timing or investing with managers with the best performance.  You are speculating and gambling with your money.

Find an investor coach/fiduciary adviser and learn how to take advantage of great long term market returns. Without the need to predict the future.

If you understand how markets actually work. You can invest with less stress and less anxiety.

Regardless of who wins the White House this strategy works.

Save and invest with confidence over the long term. Learn to ignore short term volatility.