For Richer or Poorer

Just wait till tomorrow
I guess that's what they all say
Just before they fall apart
--New Order

The 'wealth effect' posits that when people feel wealthier, they will consume/spend more. And if people consume more, then they will commensurately save less.

A nice expression of the wealth effect taken from this missive appears below.

As stock prices go up, people save less. And vice versa.

People often state that through their 401k accounts, they are 'saving' for retirement. Not if this money is going into risky assets like stocks or bonds. Saving is putting resources aside today for the purposes of consumption in the future.

Investing is not a form of saving. Rather, it is a form of speculation. Are entrepreneurs who sink their own money into a business venture 'saving' for the future? Of course not. They are risking capital today in hopes of realizing an acceptable, but uncertain, future return. Why should someone who buys a fractional share of a business via a stock purchase be viewed differently?

The above chart also suggests a forecast (perhaps an overly simplistic one) in the spirit of the natural balancing principle of markets. A prolonged bull market in stocks helped drive savings to ultralow levels. A prolonged bear market may be necessary in order to rebalance savings to more natural levels.

position in select stocks