Tiberius, Tulips & Tech: Breaking Down Key Moments When the Market Broke Down
07 May, 2024
And Why It’s Time to Get Your Financial Planning in Order Now Rather Than Later
In the famous words of Solomon, “Nothing is new under the sun.” That includes financials. Everything is cyclical. The challenge is trying to predict which part of the cycle is due to hit next.
According to a research report conducted by the National Institute on Retirement Security, 56% of respondents responded that they are concerned about having a financially secure retirement. To put that another way, they’re worried their money is going to run out once they officially leave the workforce. Keeping that in mind, I contend that one of the biggest reasons for our financial shortcomings is that we perpetuate generational attitudes about money which are often counterintuitive. In fact, they can be downright destructive.
A Financial Tale of Tulips and the Roman Empire
Back in 33 A.D., Tiberius was overseeing the Roman Empire during a historically tumultuous time, and not just for the obvious reasons. While the disciples of Caesar were kindly inviting the nations of the known world to pledge their loyalty at the tip of a spear, the economy was verging on collapse.
The banks were enjoying the fruits of loose lending rules when certain economic sectors lost value and the financial chickens came home to roost. And roost they did! Debtors couldn’t repay their loans and the lenders seized property which led to a massive devaluation of land and general deflation. In response, lending terms were tightened and Ol’ Tibbey came in with the state coffers, determining that the banks were too big a part of the system to fail. They started buying land and paying off loans to prop up banks and the economy, easing it quantitatively.
Years later, after the fall of the Roman Empire, the Dutch discovered the beauty of the tulip and its economic value. Over a brief time, the world jumped on the tulip bandwagon and a futures market was created. At its peak, a single Viceroy tulip bulb was commanding over $33,000 by today’s market standards.
Then something interesting happened. The bad part of the cycle arrived. Without notice, the bottom fell out of the tulip market in 1637. In an attempt to salvage some of the failing market, the government offered to cover 10% of the dishonored contracts leading to a further depreciation of prices. Needless to say, some poor guy had to live the rest of his life hearing, “I told you not to listen to Lars!”
Fast-forward to the Age of Information
400 years later, the Dutch had redeemed themselves by perfecting the compact disc. We learned our lessons about markets, money, and how to insulate ourselves from economic hype. Al Gore took the initiative to claim he created the internet. Information and how quickly it could be shared reached speeds previously believed to be unfathomable. It was a period of nirvana!
By the end of the decade, we were moving at warp speed towards complete reliance on this new way of communication and – perhaps more importantly – commerce. It was time for everyone to jump in on the new way to make money and boost their 401(k). “Strike while the iron is hot,” as they say. What could go wrong? EVERYONE needs computers and all things related! Businesses can’t run without tech! These are the alarm bells that everyone was sounding.
In the late-1990s, the age of information and how it was being used to pump up bank accounts had reached a fever pitch. Then it happened. The bubble burst and thousands of retirement accounts lost big. But for the “overnight millionaire” crowd it was far worse. Many of them were taking money from their 401(k) under 72(t) and had to pay a 10% penalty on everything they took prior to age 59 1/2.
Imagine that for a second. You’re 58 years old and haven’t worked in 4 years. The market just went scorched Earth on your savings and now you owe the IRS tens of thousands of dollars. For these people, it was like having a financial migraine in the middle of a Metallica concert. That’s how quickly you can get burned by the market, if you’re not careful and cognizant of the cycles.
Some Final Thoughts on Investments
You may get the impression that I blame all bad economic conditions on market investments, Governmental involvement, or the Dutch. Nothing could be further from the truth. Over the course of the centuries, we have been conditioned to believe that giving our hard-earned money to an unrelated entity that essentially bets on someone else’s business acumen will pay off.
We believe this to be the most prudent use of savings that will provide a lifetime of secure income when we can’t or won’t work anymore. And yet, every year – almost like clockwork – millions lose their life savings.
That being said, I am not “anti-market.” To deny the viability of stocks and bonds is like denying existence of water. My goal is to challenge the way we think about retirement planning and financial planning. Instead of focusing on projections and rates of return that depend on other people and uncontrollable variables, what if you could develop financial strategies that will provide true financial security and reliable income for life, no matter what happens? That’s exactly what we aim to do here at Foresight Financial Design.
The best way to start formulating your financial future is through a consultation. Our team will be happy to sit down with you and discuss your financial goals in addition to areas of opportunity that we see regarding your portfolio. It’s never too early or too late to consider how you’re going to achieve financial security once you hit retirement age.
Foresight Financial Design offers the following suite of services:
- Retirement planning
- Financial planning
- Financial management
- Private wealth management
- Small business finance management
- Estate preservation and transfer
- Protection planning services
- Infinite banking concept set-up
Call the team at Foresight Financial Design today at (913) 346-3465 or email us at info@foresightfinancialdesign.com