Should we trust trends in matters of earnings?

If your salary does not always provide the desired standard of living, then you will look for ways to make extra income. You’re not the only one who does it, many people use the same approach.

Nobody is immune to investing in trend-setting business deals that often turn out to be nothing but economic bubbles. When such bubbles burst, they cause damage to you and millions of other people.

Let’s review three examples when promising ways of getting rich failed.

1. Tulipomania (Tulip mania)

In the 17th century, Holland experienced a phenomenal demand for tulips. A significant part of the country's population joined the flower business. The Dutch sold property and purchased tulip bulbs for resale. Bulbs of a certain sort could be exchanged for a luxurious mansion. Soon enough, the demand for tulips surpassed its supply, giving rise to speculations on virtually non-existent bulbs that were yet to be grown.

In 1637, the market overheated, and the price of flowers collapsed: tulips were sold for a pittance. The Dutch tulip mania is considered to be the first economic bubble in history.

In the chart:  the rise and fall of tulip prices in 1634-1637. At the peak of the tulip mania, prices of some bulbs estimated to be worth as much as a kilogram of gold.

2. Dot-coms

At the end of the twentieth century, the Internet began to conquer the world. Companies operating in the global network were called dot-coms. The dot-com shares were in high market demand, since it was believed that electronic commerce was the future. It was assumed that the dot-coms would become the pioneers of a new type of business, and their shares would endlessly increase in value. In reality, it turned out that many companies never engaged in any practical business activity, spending their money solely on advertising and attracting investors.

In 2000, the value of the dot-com shares reached a peak, followed by a sharp decline. Within a year, pricey shares depreciated almost five-fold, leading to the bankruptcy of hundreds of Internet companies, while investors suffered trillion-dollar losses.

In the chart: the historic collapse of the dot-coms (the dot-com boom)

3. Mortgage boom in the US

In the early 2000s, American banks were so generous in issuing mortgage loans that they didn’t even bother to check the solvency of its borrowers. Many citizens willingly purchased real estate, considering it a profitable investment, because of steadily increased housing prices. Hopes were extremely high, people wanted to make a long-term profit from the purchased real estate.

Soon, massive unpaid loans forced banks to take real estate from defaulters, causing an immediate price collapse. As a result, the global financial crisis occurred in 2008.

In the photo: New York, 2007. Protesters demand to reform the system of mortgage loans that caused the crisis.

In all the aforementioned cases, people sought to earn a lot of money rather quickly. They could not even imagine that the object of their investments could instantly depreciate, becoming useless. If people carefully assessed the risks and reliability of the proposed ways of income generation, the large-scale damage would have been avoided.

The examples clearly illustrate how risky reckless investments in trendy innovations can be, the value of which is exaggerated and short-lived. Usually such trends attract consumers with novelty and short-term progress, yet the potential is quickly lost, and any trend eventually becomes a thing of the past, having managed to ruin many people’s lives beforehand.

You can follow fashion trends, when you choose what to wear next. If the suit becomes outdated within a year, buying a new one won’t be a problem. However, trusting trends in matters of earnings and financial investments is an unwarranted risk. Only eternal, time-tested values can help avoid risks.

Let’s take gold for example. For thousands of years, it has been valued and remained in high demand all over the world. Gold outlived many national currencies. The rarity and unique properties of this metal facilitate its high price, which has steadily increased over the centuries.

In the chart: the dynamics of the price of gold over the past 200 years.

Gold is a protection from the financial crisis. The noble metal has always served as a safe asset for both countries and people, strengthening their Financial Security.

WHY GOLD IS THE IDEAL TOOL FOR CAPITAL PRESERVATION