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logo    Saving that Isn't


You have all seen the ads. Buy this and save 20 percent. Buy that and save 40 percent. The more you buy the more you save.

Marketers either must have flunked grammar school English or are abettors of thieves.

The word save means "to accumulate money." The word spend means "to pay out or expend money." These words are antonyms. The logical word is contradictories . No one saves anything by spending!

Suze Orman gives consumers a lot of good advice, but not about investing. She claims that investing in the market is a good way of saving for retirement. But it isn't; it isn't even saving.

When one invests in the market, s/he is buying shares of stock, and buying a stock certificate is just like buying anything else. What is paid for those certificates is money spent. Shares are what a buyer owns, and shares are not money.

Financial advisors like Suze make the claim that share prices increase, on average, over time. There are two things wrong with this claim. First, it is not true that share prices, on average, increase over all periods of time.

For instance, if one takes the time period from Oct. 9, 2007 to March 4, 2009, share prices, on average, have fallen 51.5%. Of course, one can select time periods over which share prices, on average, have risen, but the selection of time periods is completely arbitrary. Select one time period and one can claim that share prices rise on average; select another time period and one can claim that share prices fall on average. So the claim is nonsensical.

Second, averages are phantom numbers. No one ever earns an average return. A few people may earn a return that equals the average return, but not most people. Averages are calculated from a list of terms, and except for the single case in which the average equals the median, the number of terms below the average is always greater than the number of terms that exceed the average. So deluding investors by implying that by investing they can expect a return equal to the average is nothing but a bald faced lie. So even if a person's returns from selling his/her investments is greater than what he/she purchased them for, and that calculation is difficult to make since shares are bought at different times and are then subject to different inflation rates, chances are that the return will be far less than the phantom average which is also difficult to calculate for the same reasons as those stated above.

Owning a share of stock is just like owning a piece of furniture, and just as a piece of furniture is not money, neither is a share of stock. What the future value of a share of stock is can never be known. Just like a piece of furniture, its value cannot be determined until one tries to sell it. And as anyone who has tried to sell used furniture has learned, its value may be zero.

Investing in the market is no more saving than buying soup is. (03-05-2009)