The Wealth Bubble – real or illusion
By Ginita Wall, CPA, CFP

Happy days are here again! The economy is flourishing, real estate is booming, and Internet stocks are going to the moon.

We’re saving less, and no wonder. There’s no need to save, with all the wealth being created under our noses.

But how much of the wealth is real, and how much is illusion? Here’s a fable for our times.

Donna Dreamer wanted wealth. As a little girl she dreamed a prince on a white stallion would carry her off. In college, she envisioned a brilliant career that would create fabulous wealth. As a young mother, she entered all the publishers’ sweepstakes. And when she divorced, she began buying lottery tickets, imagining her new life when she won.

Then one day it happened. She awoke to find a million dollars in brand new $100 bills stacked on a table. She called her best friend Sara to tell her the news, and to her surprise Sara said the same thing had happened to her. Everyone in the world had been given a million dollars.

At first Donna was annoyed that her good fortune wasn’t unique, but she soon recovered her good humor. After all, why shouldn’t everyone be as happy as she?

But as the day continued, Donna found that this sudden distribution of wealth wasn’t spreading happiness at all. She turned on the television to get the news, but everyone at the network had quit. Neither was there a morning paper. The corner store wasn’t open – why should he work, asked the owner, now that he was rich?

The only result of more money was that everything cost more, and there was less to buy. It wasn’t real wealth at all, for the riches had taken away people’s desire to produce.

Money is real only if it reflects the harvest of our efforts. Since ancient times, people have known that smart money management begins with saving for the future.

In nomadic gathering tribes, there was no way to store the value of their labors. But as agriculture developed and people established permanent settlements, they began to store goods and trade them. At first, their monetary system used commodities, primarily grains and cattle, which could be traded or consumed.

Their "money" grew, because seeds could be planted and cattle bred, thus multiplying the wealth of individuals and tribes. Since this primitive form of saving and investing began, building capital has been important for economic prosperity and growth.

How much of the stock market growth is real?

Quite a bit, based on the strength of current economic figures. But beware of sectors that surge out of control, like Internet stocks.

The Internet is the new frontier, with unimaginable promise. But it is worth only what will be harvested from the investments that are being made. The manic trading that has erupted is a giant chain letter, as stock trades from investor to investor at higher and higher prices. Don’t be left holding the financial bag.

about the author:  Ginita Wall

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