Thursday, December 15, 2011

Democratization of Investing

Before about 1980, if a man was described as having stocks and bonds, most of us would immediately think of him as rich. More than 30 years ago, only the wealthy seemed to have enough surplus income to buy these kinds of securities. "Stocks and bonds," was a code-phrase for well-to-do.

But that changed sometime in the 1980s. Mutual funds lowered their initial investment requirements and other retail investing services emerged that allowed people to participate in stocks and other investments that had previously been reserved mostly for the rich among us. Today a large part of Americans own such investments in the form of 401K or other workplace retirement accounts. [In fact many people who invest in this way are unaware or have forgotten about their account and are sometimes embarrassed when they criticize the capitalist class and stock holders of corporations guilty of malfeasance when they themselves are involved, too.]

But I think that when the financial industry became widely available on a retail basis to a mass of U.S. consumers some 25 years ago, the wealthy for whom the party had been invitation-only, began to look for other ways of making their money work for them. By adopting almost a, "there goes the neighborhood" sentiment, these wealthy folks turned to financial service providers who were ready with sophisticated investment vehicles, many of which required very high initial investment amounts, thereby assuring the same exclusivity of a gated community neighborhood.

Increasing the American workers stake in the U.S. economy was probably good, at least on the surface, but the tricks to which the wealthy and their financial advisers stooped in order to distinguish themselves from the "unwashed" investors ultimately led to a financial collapse early in the 21st century. Professionals in the financial services industry dreamed up all sorts of sophisticated investment products that excluded the nickel and dime players and which (it became clear) the U.S. government regulators charged with reviewing the industry could neither keep pace with nor understand.

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