Fastest growing segment of American society

Mar 10th
Posted by shambo  as Economics

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Let me say this about that.

I am often amazed by how little most folks actually know about how things work in their lives.¬† I don’t necessarily mean physical things like refrigerators, thermostats, or cell phones.¬† I mean¬†institutions like banks, insurance companies and the stock market.

I know a number of guys¬†who claim success investing in the stock market, but when pressed, display a pathetic lack of knowledge as to how the whole thing works.¬† This lack of knowledge can often fool people into thinking they are making money, when in fact, they aren’t – or at least not as much as they think.

Say for example, John wants to invest $1,000 in “BloJo Inc”, a $10 stock listed on the New York Stock Exchange.¬† He calls his broker to handle the transaction and is charged a¬†3% ($30) commission – resulting in¬†an¬†actual¬†purchase of 97 shares, or¬†$970 of “BloJo” stock.¬† Three months later…¬†¬†¬† John’s broker tells him he is going to¬†sell the stock at $10.50 per share for a total of $1018.50 and make him a profit of 5%.¬† He also charges John a 3% commission for the stock sale totalling $30.56.¬† Since the sale took place within one year of the purchase, John must pay federal ‘ordinary income’ tax on his profit ($1018.56 – $970 = $48.56) of¬† $17.00.¬† But wait, John lives in Atlanta and must also pay a 6% state income tax of $2.91

John¬†will tell you¬†he has earned a 5% profit on his investment.¬† But he has paid $60.56 in commissions and $19.91 in taxes – all of which results in a $61.91 or 6.2%¬†LOSS !!¬† John is a dumbass, but he’s not alone.

Take another activity aimed at the intellectually challenged Americans – casino gambling.¬† Last year, U.S. casinos took in nearly $100,000,000,000 in revenue – that’s $100 billion American gamblers wagered on a long term mathematical IMPOSSIBILITY¬† !!¬† That’s right.¬† Casinos only allow games to be played in their establishments that make it mathematically impossible to win in the long run.¬† Sure, you might win on a single roll of the dice, but if you continue long enough, it is impossible to win.¬† So, what do you call a group of people that spends $100 billion per year on a guaranteed loosing proposition?¬† That’s right – dumbass.

Probably the most misunderstood “necessity” in American life is term life insurance.¬† Insurance companies spend millions in advertising telling you that no American family should go without the “protection” of term life insurance.¬† It’s the worst investment you can make – short of the ‘investment’ you might make¬†at the casino.¬† The cost of term life insurance is determined by a number of factors – age, health, family medical history – even education levels and socio-economic status.¬† Insurance companies use “actuary tables” that take all these facts into account and predict the most probable date of your death. For example, the tables show that a male my age, in perfect health,¬†can expect to¬†live an additional 17.44 years.¬† The cost for me to buy term life insurance would be calculated to assure the insurance company gets a tidy profit, even if I live the full 17.44 years.¬† If I die earlier, the¬†insurance company’s loss¬†is mathematically offset by guys who live longer than 17.44 years.¬† You are better off putting the premiums in a CD. People¬†who believe term life insurance is a sound investment could be characterized by the term – dumbass.

The old saying that “A fool and his money are soon parted”¬† certainly applies to the average U.S.¬†citizen.¬† It is regrettable because most of us could avoid giving our money away simply by paying attention and ‘doing the math’.¬† I don’t hold out much hope¬†that a great awakening is going to occur in America, however,¬†simply because the fastest growing segment of American society is – dumbass.

And, that’s all I have to say about that.

Shambo

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