Posted by: | 8th Oct, 2010

The Role of Financial Markets

When Murray Carlson spoke to our class last week, he asked us to remember one of three things about finance. One of them was this: financial markets allow you to move value through time. He had a great example that had to do with receiving guaranteed money in the future, and transferring that value to the present.

When I think of this aspect of finance, I think of saving for retirement. Saving is giving up a portion of your current wealth so that you may use it in the future. I’ve always thought of most types of investments as a type of savings. But the more I think about the way many people invest their money, the less I think of it as savings and the more I think of it as gambling.

When I see article after article detailing how you should still buy gold or that copper is the next metal to skyrocket, I realize that many people aren’t looking to transfer value through time in financial markets. They’re looking to multiply value quickly. That’s why business articles talk about dramatic short-term changes in financial markets, because people are interested in the short-term.

I don’t have any specific article to link to; this was just a thought of mine.

Are financial markets the wrong tool for the job of quickly multiplying wealth? Maybe lotteries are more suitable.

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