Is This the End of Investing?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Our current financial crisis isn't just about stocks anymore.

Sure, the Dow dropped below 11,000 again yesterday. Yes, stocks like eBay (Nasdaq: EBAY  ) and NetApp (Nasdaq: NTAP  ) hit fresh 52-week lows.

But you'll find even more troubling behavior beyond the stock market. When officials like Hank Paulson and Ben Bernanke talk about the potential collapse of the financial system, they're talking about much more than just stocks. They're trying to keep problems from threatening every type of investment you can make.

Safe no more?
If the financial crisis were contained in the stock market, worries about systemic risk would be less extreme. As painful as it is for shareholders to watch their stocks plummet toward zero, everyone knows -- or should have known -- that taking on the risk of complete loss is the price you pay for the chance at high returns.

The problem, however, got a lot wider last week, when the bankruptcy of Lehman Brothers caused one money market fund to break the buck. Just as bank deposits weren't insured during the failures of the Great Depression, money market funds aren't insured against loss. Faced with the dire consequences that would result from a worldwide run on such funds, the U.S. government was left with little choice: It included provisions in its bailout package to provide insurance on money-market fund deposits similar to that offered for bank deposits.

Adding to the list
That challenge to a fundamental tenet of investing -- that you can always retreat to cash if you want to avoid risk entirely -- is just the latest in the onslaught against successful investing. Consider:

  • As we approach the 10th anniversary of the last stages of the tech bubble, trailing 10-year returns for major indexes are almost certain to go negative in the next year. Already, many large stocks, including Pfizer (NYSE: PFE  ) , Dell (Nasdaq: DELL  ) , and International Paper (NYSE: IP  ) , have lost at least 20% of their value since 1998.
  • Despite seeing some gains recently, the U.S. dollar saw its biggest drop in seven years Monday, on fears that the Treasury's $700 billion bailout proposal will cause budget deficits to skyrocket and cause long-term inflation.
  • With short-term rates still near historic lows -- Treasury bill yields actually went negative briefly last week -- income investors aren't earning much on their savings. Even worse, bond-fund investors could see big losses too if interest rates rise.
  • Given the carnage on Wall Street, with the last surviving investment banks registering to become more regulated bank-holding companies, basic questions arise about whether companies will have to fundamentally change the way they raise capital.

It's enough to make you think the whole system may really be ready to collapse -- especially if investors don't find something that will at least let them protect their capital. Even those trying to protect themselves with gold and silver bullion have had trouble, as the U.S. Mint and other bullion coin retailers have had trouble keeping up with demand.

Investing isn't dead
Despite the turmoil in the financial markets, one thing is certain: The entrepreneurial spirit is still alive and strong. Even if traditional investment banking were to disappear entirely, companies would still find ways to raise capital, with innovations like the auction IPO Google (Nasdaq: GOOG  ) used in 2004. If public stock exchanges like NYSE Euronext (NYSE: NYX  ) stopped trading, private equity would likely prosper, by offering a conduit for wealthy investors to find excellent profit-making opportunities.

There's no doubt that Wall Street is going through a fundamental transformation. But those who believe that the end of capitalism is near underestimate the need for people to preserve wealth, both for their own good in the future as well as for the present needs of those who are important to them. As long as that need is there, investing will survive. And given how many times familiar investments like the stock market have gotten through the toughest troubles, there's every reason to believe that stocks will rise again.

For more on the financial crisis, read:

When industries are changing, innovative companies prosper. Our Motley Fool Rule Breakers newsletter seeks out those companies, often finding them before they hit Wall Street's radar screen. NYSE Euronext and Google are just two of the recommended stocks you'll find when you sign up for a free 30-day trial.

Fool contributor Dan Caplinger makes monthly contributions but also holds back a little for those rainy days. He doesn't own shares of the companies mentioned in this article. Pfizer and International Paper are Motley Fool Income Investor selections. Pfizer and Dell are Motley Fool Inside Value recommendations. eBay is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The force of the Fool's disclosure policy will be with you, always.

Read/Post Comments (1) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2008, at 12:21 AM, realitycheck13 wrote:

    Naked short selling gone forever?

    Thankfully naked short selling is now banned. Seriously, who needs to see those naked Wall Street guys biking to work just so they can short some stocks!

    It seems like only now that the market has crashed is anyone....

    continued at

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 735736, ~/Articles/ArticleHandler.aspx, 10/27/2016 9:03:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
EBAY $28.81 Down -0.01 -0.03%
eBay CAPS Rating: ****
GOOGL $817.35 Down -4.75 -0.58%
Alphabet (A shares… CAPS Rating: *****
IP $45.14 Down -1.02 -2.21%
International Pape… CAPS Rating: ****
NTAP $33.80 Down -0.20 -0.59%
NetApp CAPS Rating: ****
NYX.DL $0.00 Down +0.00 +0.00%
NYSE Euronext CAPS Rating: *****
PFE $32.48 Up +0.08 +0.25%
Pfizer CAPS Rating: ****