Common Cents for December 7th 2012

All the debate over the fiscal cliff has masked some real problems in our nation’s economy. We are so focused on short-term economic growth, you could argue we are failing to see the forest for the trees. Will either political party’s taxing & spending proposals really permanently drive the US economy back into the Middle Ages, or even worse, the 1970’s? Not hardly likely. Tax rates alone won’t do that, nor will spending cuts. However, couple those things with any tightening in credit and unfavorable demographics, and, well, we just might have a problem.

We talk about the tradeoff between risk and return in the investment industry. Intuitively, you receive a greater return if you take more risk, and vice versa. Of course, this might not always play out exactly as we would like, but, over the long run, it seems to hold true. Risk begets reward, and reward begets wealth. As such, the real issue, in my opinion, is: how do we get US businesses, investors, and workers to start taking more risk?

That is the $64,000 Question.

Historically, people become more risk averse as they age. This makes sense, as the older you get, the less time you have to earn back your money, or lost wealth, if your risks work against you. Historically, the biggest risk takers, as defined by business start ups, seem to be workers in their prime earning years. Depending on who you ask, this is between the ages of 40 and, say, 55.
…Read On…

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