When The Strict Get Stricter, The Rich Get Richer
Our society tends to see things as black and white, good and bad, and, economically speaking, rich and poor. Like the small town in the Old West, we see the economy as a zero-sum game; there’s only room in this town for one sheriff.
This type of thinking promotes the idea that if you are making money, you are taking money. And if you have money, you made someone else poor. The sheriff, in this case, the financial regulator, rides in with a pen and paper a’blazing to try to right the wrongs of this limited economic vision.
But, the law of this town is the law of unintended consequences. The people who have money are able to use risk and find more investment options that lead to higher returns. They’re able to use options that the rest of us just don’t have. Obviously, they can afford to have more money into investments, too.
Over the years, rich get richer because they use these factors to drive the miracle of compound interest. Compound interest, referred to as a modern wonder by Albert Einstein, takes returns from an investment and adds it to the original amount. It uses three factors to increase the size of your investments: time, an interest rate multiplier, and the size of your original investment. Increase the amount of any of these factors and the results can be dramatic.
You can use a compound interest calculator to see just how dramatic these results can be.
Most can do nothing about time–although, you can start your children investing early. But, by increasing the amount of your investment and raising the rate of return, your resulting returns jump.
Things can go awry. Over the past few months, poor financial managers and greedy con men and women have devastated investments of millions of Americans–rich and poor alike.
Even though rarely-enforced regulations exist, the cry will be (and has been) to increase regulations even more and raise the warning alarms about investing that, while good-hearted, will further push more people away from investing (time) and away from solid, dependable high returns (interest rate multiplier).
The government and regulators’ moves might be to restrict the investment size and investment options of non-accredited investors (read: less well-off investors). i.e. they’ll get poorer, or at least, less rich.
Meanwhile, those who are wealthy will do the smart thing; they’ll find investments with good returns and put their money there. That’s not evil; that’s smart. So, this money will compound, i.e., they’ll get richer.
The solution? There should be investment options available to all that offer high returns and low risk. Regulations should be enforced to promote a vibrant, growing economy where the rich get richer and the poor get rich.
Related posts:
- The Rich Get Richer…
- Conspiracy Of The Rich No More, How Automated Trading Is The New Hedge Fund
- The Secret ‘Get Rich Never’ Scheme Of Financial Advisers
- Investing’s Secret Number: 72
- The Eighth Wonder Of The World: Compound Interest
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is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
