Guide to Financial Ruin
With all the news these past couple months about how bad the economy has been doing, I thought I’d write a post about how one could have been led to financial ruin this past year. For those that have lost lots of money from any one of these items, I apologize for your loss, though one should remember that there’s never a sure bet when it comes to money.
1. Anything related to the stock market: For years, people have often quoted the fact that historically, the stock market has gained an average of 8-11% every year. While this may still be true, this past year, I believe that the stock market lost around 40% with financial stocks taking a huge hit this past year. I think I’ve heard the number that a paper loss of around 1 trillion dollars occurred due to the drop in the stock market. For those that held stock in Bears Stearns or Lehman Brothers, they basically lost everything.
2. Home Ownership: This one especially applies to those who bought homes in California, Nevada, Arizona, and Florida. Areas that I believe were hardest hit by foreclosures this past year. People were constantly throwing out the idea that homes would constantly increase in value. Then they were encouraged to take out ridiculous loans since the value of the home would continue to go up, allowing them to simply refinance later and save money. However, once home values dropped, people began to owe more on their homes than what the home itself was worth. Millions of homes are now in foreclosure.
3. Investing with Bernie Madoff: While this only affected a small group of people, it resulted in a loss of $50 Billion. For those that don’t know, Madoff ran a Ponzi scheme where I believe he was guaranteeing 20% returns on money invested. The scheme worked well when the economy was looking good and people had money to invest. However, when the economy began to tank, and people got scared they began to pull all their money out. The problem was, Madoff had already given their money to earlier investors, so there was no money left. Billions were lost, with some people literally losing all their savings to him.
4. Getting an MBA: While this isn’t necessarily bad, this point is used to mainly emphasize the enormous amount of jobs lost in the financial industry. Since getting an MBA in Finance and then going to work on Wall Street was almost a sure-fire way of making money, lots of people began to get MBAs to get the Wall Street job. However, when the banks began to fall, finance jobs were lost overnight. One number I found quoted in December indicated that ~7% of the million job losses were in the Finance sector, and this was 2 months ago before some firms really started to announce more layoffs.
5. Owning the Zimbabwean dollar: For those that follow the world economy, they’ll have heard that Zimbabwe was hit with such high inflation, that it caused the Zimbabwe dollar to tank. In July of last year, Zimbabwe had an inflation rate of 231 million percent. That would mean your Zimbabwe dollar would’ve been worth practically nothing. Inflation got so bad, that Zimbabwe even printed their own Trillion Dollar Bill!
6. Other Sure Bets: Betting it all on the New England Patriots to win the Super Bowl after going 18-0. Hillary Clinton becoming President early on. HD-DVD beating out Blu-Ray. Price of Oil hitting $200 (though this may still happen eventually).
So there you have it, 6+ ways where you could’ve lost a lot of money. Be on the lookout next time for my guide to managing money! 