Financial Capitalization

Capitalization of the middle classes from 1850 to 2005

In this period, in the central countries, where the Stock Exchanges were developed: USA, England, the Netherlands, Switzerland, France, Germany and Sweden. The middle classes were able to channel their savings to large companies. And so, at the same time that the big companies were growing and expanding around the world, the families of the middle classes of these countries were capitalized.

Meanwhile, in the peripheral countries there was great difficulty in the placement of strategic family reserves: the accumulation of cash was not viable due to the continuous devaluations of the currency, the stock markets of these countries had very few reliable values, housing for rent was subject to political regulations and the only acceptable investment was own housing. The result of this situation is the scarce financial culture that exists in these countries.

Capitalization since 2005

From 2005 onwards, many of the peripheral countries move into a central geographical area where they can have their reserves in international markets on equal terms with the families of the more developed countries. You just have to have the preparation, the knowledge and the determination, just as in previous periods you had the knowledge of the crops and the raising of livestock in the agricultural smallholdings.

The liberation of the economy, the free circulation of people, greater legal security, information, financial transactions over the internet and the freedom to operate in any market, open a range of possibilities for capitalization that until now did not exist in the peripheral countries.

Financial Wealth in Europe

From 2008 to 2019, Financial Wealth in the Netherlands went from 80,000 to 160,000 euros per capita (+ 100%), and in Spain it went from 40,000 to 50,000 euros (+ 25%).

What lies behind this surprising difference is simply the structure of the equity portfolios:

The Dutch have a higher proportion of products in their portfolios that benefited from the rise in equities in the last decade, which has been instrumental in achieving high returns. This is because households in the Netherlands have mandatory pension plans that account for 61% of their financial assets and these have a high proportion of shares.

The Spaniards have financial wealth in their portfolios with around 40% in assets and deposits. The shares and participations in mutual funds account for around 35% and 10% is in pension funds, 10% in insurance and the rest in bonds. This composition of the portfolios explains the low profitability obtained due to the low proportion of equity assets.

The importance of Knowledge

Detailed wealth data is extremely rare, but Norway’s highly reliable 12-year (2004-2015) tax records have opened a new window into wealth accumulation for individuals and their descendants.

“This database shows that a person in profile 75 of the wealth distribution who invested $ 1 in 2004 would have $ 1.50 at the end of 2015, a 50% return. A person in the upper profile would have produced $ 2.40 for the same dollar invested, a return of 140%”

Furthermore, “another significant finding is that high returns prevent people at the top of the wealth from leaving that position.” It is the people who are already in the high zone (in profile 90 or above) who have the best chance of staying on top thanks to the greater return on their investments.

Published data reveals that the returns on assets are higher as more wealth is accumulated. People with high wealth invest a greater part of their savings in risky assets (stocks, mutual funds …), while people with low wealth (with a tighter monthly budget) tend to present a greater aversion to risk and they opt for more conservative assets such as deposits.

Family Knowledge

Family Knowledge and Group Knowledge are priorities for survival. Throughout history we have a multitude of examples of groups, ethnic groups and countries that have overcome the Knowledge.

In the Modern Age and in Europe there were regions that at a certain moment were developed by the Knowledge of a technology, and were ruined decades later because other regions advanced them in Knowledge.

The Development of Knowledge Groups with the determination of continuous training and the Transmission of said Knowledge, are priorities for the Capitalization of families and groups in the long term.

Financial Investment

The purchase and sale of Financial Assets, Fixed Income and Variable Income, is carried out in the Financial Markets, that is, in the Stock Market.

According to a general trend of opinion, investing in the Stock Market is a game. We are not going to contradict this opinion, but we do think that it is necessary to clarify what a game is, because in all human activities there is a greater or lesser component of the game. Let’s see:

  1. Games of chance: when it is said that an activity is a game, we understand that it is meant to be a game of chance, and this means that a competitive advantage cannot be achieved through knowledge. For example, the lottery.

  2. Skill games: when with knowledge, study and work you can achieve a competitive advantage to achieve professional, business or human relations success. For example: when a young person studies professionally, they first have to invest money and a lot of time, in order to ultimately be necessary the game of luck to get into the job market, the same there are large companies that play successfully in the market and others in the same market and the same sector they go bankrupt.

As we see in the previous section, Financial Wealth in Europe, the knowledge and work of traders makes the Dutch pension funds the best in the world, and the Dutch workers accumulate more and more wealth. To think that the work of Dutch traders is a game of chance, as the poor trend of opinion would have us believe, in dogmatic format, circulating like all dogmas in a medium of collective ignorance, seems a great simplicity.

Gaining a statistical advantage as a trader in the financial markets is not a game of chance, it is a long and laborious journey of study and work to achieve a competitive advantage, the same as in any other profession.—

Financial Freedom

More and more young people are planning with the hope of achieving Financial Freedom.

With pensions falling and the retirement age increasing year after year, the possibility of achieving Financial Freedom begins to gain popularity among young people.

Beyond utopias, the so-called FIRE movement (Financial Independence Retire Early) seeks to establish a strategy to achieve Financial Freedom as soon as possible. Although the objective is not easy, there is no guarantee of reaching it and it is reached based on years of strict saving and wise investment, more and more young people are signing up to this philosophy.

The movement began in the United States, has also penetrated strongly in Canada and the United Kingdom and is now landing in other countries with prospects of staying.

Work is a very important and positive part of our lives, but the fact that we are forced to work for 40 years so that we can collect a basic pension at 67 or 70 does not seem like a good plan. And this is where Financial Freedom comes into play: that is, the freedom to decide what to do with your time without having to depend on the State. It is a very ambitious goal, which requires a lot of perseverance and determination. Even those who think they can make it may not make it because of the circumstances of life.

To walk the path with the best chance of success, the key is to save and invest, and start as soon as possible. Financial freedom consists of reaching a certain patrimony with which to ensure sufficient income to cover the expenses generated by our lifestyle.

There are three steps that every individual can do to try to achieve the goal: invest, start doing it as soon as possible and choose the assets with the highest profitability.

Pension plan

At this time of uncertainty regarding the sustainability of long-term pensions, and the limited record of results of the pension funds managed by the institutions, it is of special interest to create and administer a Family Pension Fund.

Capitalization Plan

It is important to establish and follow a Capitalization Plan.

For any of the cases presented: Capitalization, Financial Independence or Pension Plan, the strategy to have success possibilities is always the same:

Determination, discipline to save, invest, seek high returns, reinvestment of benefits systematically and maintain this record for long periods of time.

In order not to lose heart along the way it is important to be vigilant against the negative influences that sometimes come from dogmatic populism and other times simply from ignorance. We recall here a fragment of Steve Jobs’ investiture speech at Stanford University:

“Your time has a limit, so don’t waste it living someone else’s life. Don’t let yourself be trapped by dogmas, don’t live with the results of other people’s thinking. Don’t let the noise of other people’s opinions silence your thinking. And More importantly, have the courage to follow your intuition, because somehow you already know what you really want to become. Everything else is secondary.” ·
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