Investment Risk of the Current Distribution of Wealth

If you think that your wealth is safe from confiscation by the government, you are wrong. Going back a century there were families in Great Britain who owned estates the sizes of large U.S. counties. These were “taxed away” with each passing generation so that now the survivors of these once-great families live in one wing of the old estate while the National Trust runs the rest of the buildings and grounds as a museum.  John Steinbeck once noted that even the poor in the U.S.A. view themselves as temporarily dispossessed millionaires. Thus, he did not think that the U.S. citizens would revolt or that the government would adopt confiscatory measures as in Great Britain. Now when Bernie Sanders and Elizabeth Warren talk about paying for health care and other things with increased taxes on the uber-wealthy, people are listening and supporting their campaigns. Add to this an increasingly-unpopular president soon to be impeached, and you have a potential recipe for investment disaster.

Investment Risk of the Current Distribution of Income

Trump and the Republicans crow about the lowest level of unemployment in more than half a century but fail to mention that so many of the new jobs are with low wages and none of the benefits that came with jobs a couple of generations ago. People who rent in places like San Francisco are living in the last apartment they will ever live in within that city as they are only protected by rent control from being priced out of the housing market. All of those folks with low wages who are living paycheck to paycheck can vote. And, one of these times around they are going to elect enough representatives, senators, and a president whom they believe will rectify things. When that happens, the safety of your investment portfolio could be at risk.

Investment Risk of the Current Unequal Distribution of Access to Health Care

This is another area where many people are hurting. The health care benefits that were so common in another era are gone for most people. And, at the same time, the cost of care has risen dramatically. In this case, we might expect higher taxes on the wealthy as part of the package to provide more access to health care. But, we might also see confiscatory regulations in regard to the pharmaceutical industry and health care providers.

How Do You Deal with Investment Risks for 2020 and After?

Part of your investment planning should be to decide which investment sectors will not be targeted by overly-zealous attempts to rectify perceived social injustice. Because there is not enough money in the investment portfolios of the super-rich to pay for the things that Warren and Sanders want to do, we can expect them to have to borrow. This will drive up long term interest rates but likely lead to inflation such as in the 1970s. Could this be a good time to be looking at gold as an investment again? Real estate might be a better choice.