Households are reported to have lost $11T in the past 12 months– wow. (Reuters article here…) How will the average household move forward from this debacle and deliver on the “American dream” that includes a house, college education for those inclined and a reasonable shot at making a “good living” – including retirement?
After all, most of these households received information through their financial advisors and popular literature that diversification in the form of mutual funds presented the most rationale response to risk. And furthermore, to not be in the markets was somehow irrational and the unspoken message- perhaps even irresponsible. How will the financial services industry ever regain credibility in its advisement role? Did any of our (yes, I have been in the financial services industry) advice on risk management and prudent investing work? There are apparently $11T data points to indicate otherwise.
Is the standard advice only useful during blue skies? And essentially useless during the hurricane? Will the average household buy the excuse being offered that “this only happens once per century… you can still trust us to invest your money.” I have no idea how the consumer/prosumer investor will respond. However, I am pretty sure that there are institutional investment funds all over the world seeking to rebuild their asset bases and we can expect a flood of marketing once they crawl out from under their desks.
Figure 1. Our Financial Advisors
Source: Nick Anderson of the Houston Chronicle
There is however one capital base that remains as strong as before the market crash (yes this is a crash for real -see Figure 2.) The asset that I am referring to is human capital. It is also what I believe may be the single best road through this mess.
Figure 2. The Story of the Four Bears
What is human capital? It is our talents, skills, competencies, education, creativity, drive to entrepreneurship and ingenuity. This is the untouched asset base that remains as valuable as it was prior to the market swoon. On a relative basis, human capital is now more valuable and unfortunately, it is very available. And all things considered, it may be the wisest investment available to us at present. And the best thing about human capital? We do not need a broker or financial advisor to charge us a fee to invest in this resource.