I’ve listened to many people tell me that the system is hopelessly rigged against the working class, so they don’t even bother to participate. The argument they make usually describes what happened during and following the 2008 financial crisis. That is, the largest banks received massive bailouts with very easy repayment terms. Not to mention, these same banks have also benefited tremendously from nearly free consumer deposits, as the Federal Funds rate still hovers near zero. Other large corporations, including insurance giants and industrials, also received enormous cash infusions the likes of which had never been seen before. But, individual homeowners did not receive similar bailouts to keep them in their overpriced homes. Additionally, the Federal Reserve invoked quantitative easing policies, which involve buying mortgage-backed securities and Treasury notes, to increase the prices of those assets. But, quantitative easing can cause high inflation for the general population, and there’s no guarantee that the banks will loan out the excess funds. Naturally, this combination of corporate bailouts and quantitative easing have left many people furious. After all, these funds were their tax dollars being used to keep wealthy bankers and corporations afloat instead of being spent on more worthwhile projects.
However, when you scratch below the surface, these issues become far more complex. The expansive corporations that received bailout money employ a very large number of people. Large companies also buy goods and services from smaller companies, thereby flowing capital throughout the economy. On top of this, everyone benefits from a correctly functioning financial system. Most businesses operate off of lines of credit supplied by banks. These credit lines allow the companies to meet payroll and buy the goods necessary to produce whatever they make before they’ve been paid by their customers.
I think an even more important realization came to the forefront during and after the financial crisis. That is, Washington will do anything possible to keep the banks operating and the stock market from a total collapse. This is critical information that we are all now armed with. And, this is the real reason the system is not rigged against you. No matter how bad things look, you should invest in these same companies through buying stocks. If you are concerned with individual bankruptcies and poor performance, as you should be, then you should buy broad index funds. No matter how bad things look, an eventual recovery is inevitable. So much money will be pumped into the system that a depressed market will have nowhere to go but up.
Now, I’m sure you are all aware that if you had simply stayed invested in all of your fund holdings, you would have made a full recover a few short years after the crisis. In fact, you would be ahead of your prior holdings by a significant margin. This is the simple nature of the stock market; there is a natural bias towards a market uptrend. You aren’t just trading valueless little slips of paper. Rather, you are trading small pieces of companies that are trying very hard to grow and improve their operations. Also, the poor performers are eventually pushed off the exchange by higher performing upstarts. However, on the upside, there is no limit to how much a company can grow. So, this combination creates a natural upward bias.
All you have to do is invest in this market and ignore the bumps along the way. There will always be fear. There will always be corrections and crashes. But, if you buy into the markets, then you will come to realize that the system isn’t really stacked against you. It is as free and open for investment as ever. You just have to take the plunge and invest for the long term.
Just for fun, here are a few of my favorite/typical holdings for a standard brokerage account:
VTI, BND, SCHD, VNQ, LQD, and VXUS
What are you waiting for, buy in and enjoy the ride!