Back in 2006, I had a revelation. I was a software engineer and I made decent money. However, there was a lot of talk about off-shoring all kinds of software projects. I looked into it and with companies like Elance, I realized that there could be a major shift coming sooner than I thought. I looked at into my heart and it didn’t take long to realize that software engineering didn’t interest me enough to motivate me to be the expert I would have to become to justify my salary. That’s why I started this site. I needed to find other ways to supplement my income for the day when I would transition out of software engineering. That day happened in October, 2007 and I haven’t looked back. If I could talk to my old manager again, I’d give him a great big hug, say thanks, and ask if he’d do one more impression of the old child molester on Family Guy or sing a Kelly Clarkson song.
What does this have to do with history? The world is changing – extremely fast. Detroit used to be a thriving hotbed of wealth. Now it needs bailouts just to keep afloat for another few months. At last 2007’s American Pharmacists Association, a distinguished speaker said that companies were exploring outsourcing clinical pharmacy studies oversea. Shoot the data over the Internet, have a pharmacist there analyze it and shoot the results back. It’s that simple and a lot cheaper. At some level, either Americans have to start providing more value (how?) or one of two things is going to happen: American wages will drop or other countries’ wages will rise. I imagine it will meet somewhere in the middle.
This has me thinking… for years financial advisers and Money magazine have repeated the 8-10% historic rate of return on stocks. Can we trust this history? What were the factors that contributed to that history? When I was growing up, I remember seeing things that said, Made in USA. I don’t know if I’ve read that phrase in the last ten years. Might that impact the historical rate of return of US stocks? I think it might.
I often read the historical rates of return on real estate. It’s had a big run and it seemed that around 2004 everyone was living by the “it always it goes up” credo. Well today we’ve learned that it’s not entirely true. Perhaps the reason real estate jumped up over the 30 years is due to women getting more lucrative jobs and families finding themselves with more money. If people have more money, they can bid up the price of homes. If that theory is right, the blast of extra income was a one-time event. In the end, real estate prices have to track wages or people will be forced to stop buying.
What I take from this is that you should believe the popular mutual fund disclosure: past performance is no guarantee of future results. I’d take it a step further and say that past performance might not even be a good indicator of future results. Does that mean you should stop investing? I think you should look for opportunities in this changing world. If you think that television is going to go Internet via sites like Hulu and YouTube, perhaps a investing in Internet infrastructure is a good move (Cisco comes to mind). If you think that we are going to be slow to adopt solar technology, perhaps you should invest in oil. If you think that solar technology is going to be big in ten years (a point I wouldn’t argue), perhaps you could invest in Claymore/MAC Global Solar Index or Market Vectors Solar Energy.
Does this mean that everyone in the United States is doomed? No. Now is the time to be proactive and think about the future of your field and your career. It’s time to take a few minutes and not think about what’s for dinner tonight, but what your long term plan is (unless you are already nearing retirement. In that case just carry on :-).
A final thought, this month’s Money magazine points out that Japan has been in a bear market for 19 years – very much a whole generation. I wonder what the Japanese version of Money magazine says about historic rates of return.