Your Money Is Not As Safe As You Think
There are no two things that last together less than a fool and money.
The economic volatility of the past three years has been well-documented, but nowhere is it more evident than in the difficult situation of the average American worker. The alarming statistic that originally led me to investigate was that more than 50% of Americans earning $100,000 or more say they live paycheck to paycheck.
Think about that for a second.
It is estimated that 18% of Americans earn more than $100,000 a year and that approximately 34% of all American households exceed the same income threshold. This amounts to tens of millions of Americans with six-figure incomes but unable to achieve financial security.
And we are not talking about a developing country, we are talking about the United States of America.
But how is this possible?
The war in Ukraine? The semiconductor crisis? Interest rate hikes? Inflation?... No, no, no, and no. All the bad that has been happening to us for several years now comes from another source, and that source is Covid.
Covid has changed everything, and it's going to change even more, much more. How can this be? Very simple, all central banks after the pandemic had the perfect excuse to flood the market with liquidity. They flooded it in an unprecedented way. Many people in the world, and specifically in the US, received monthly paychecks much higher than the minimum wage in any country in the world.
Remember this: there are no two things that last together less than a fool and money. Here is the proof...
Obviously, the savings rate gradually overflowed, people who live paycheck to paycheck had much more money in their checking accounts than usual, and what have they done? They haven't saved it, they haven't invested it, they've spent it.
It seems incredible that in a world where people will not receive any government help for their retirement in any country in the world, we are so foolish as not to save. I remind you that the average age in developed countries is over 80 years old, and the average retirement age is 60-65.
It's not difficult to imagine that if a person who lives daily and earns 100k has to go 20 years without that source of income, they won't make it.
Money buys time. Time is limited, and money is unlimited, so let's not be foolish. We have a golden opportunity to improve our personal finances and put our money to work. It doesn't matter if you are a value or growth investor, you follow candlestick patterns or the stars, the important thing is that you put your money to work and have a defined system.
This system should try to reduce risks and improve performance. This is tremendously difficult and can only be achieved through an asymmetrical portfolio, a portfolio that allows us to have great profits and few drawdowns, and for this, it is ideal to bet on black swans.
What does this consist of? Buying small positions in very asymmetrical bets, generally with very OTM PUTs and CALLs in extreme market situations like this one where unemployment is at a minimum, just like the savings rate. In the following graph, we can see that in 2005 the savings rate was at a minimum.
This only happens near a correction. Similarly, if these people without savings, but with loans, raise interest rates, the cocktail can be deadly. Look at how interest rates have risen.
Now we leave you with our portfolio.