Are We Living in a Monopoly Economy?
When you play the game of Monopoly, everyone knows (for the most part) that you want to invest your money in income producing assets that generate money for you, while also causing the other players to spend down their money by landing on your owned assets and properties. Buy as many income producing assets as you can, without going bankrupt in the process. Simple right?
How does this relate to our modern economy? Let’s first take a look at money in the game of Monopoly. Are you rewarded for holding onto your money in the form of interest payments? Of course not, the money in the game is a means to an end. In our current economy are people rewarded for socking away their savings in the local bank? Of course not, the banks pay a minimal interest rate while the rate of inflation makes your return on cash negative. You are actually penalized for holding cash, both in the game of Monopoly and in our current economy. Does that mean you should spend everything you have? Absolutely not, because cash gives you flexibility to act quickly when opportunity arises, it is certainly needed. Should all of your savings sit in cash? Not unless you want to lose purchasing power year over year.
Properties and Companies
The game of Monopoly is filled with income producing investment opportunities, namely properties and companies. If you land on a piece of real estate you can choose to purchase that real estate and eventually add rental properties and hotels on said property. Your rate of rent goes up with each addition on that given property. Similarly, you can invest in railroad and utility companies that pay you a yield when the other players land on them, and like the properties your yield increases the more you own.
In today’s economy, there are nearly unlimited investment opportunities when you factor in cryptocurrency among stocks, bonds, mutual funds, exchange traded funds, real estate, farmland, precious metals, royalties, and more. The stock market has experienced unprecedented growth with technology stocks leading the way. Historically the investments that are simply growth focused tend to do well when the economy does well but lose their value just as quickly when the economy softens.
How Do You Win?
Nearly every asset class has experienced tremendous growth over the past decade. What happens when that growth slows down? I would argue, those that take a Monopoly style approach towards their investments might come out ahead. Investors that spread their wealth across the board, utilizing asset diversification, and invest in financially sound assets that produce an income for the investor, will build a healthy portfolio. The caveat both in the game of Monopoly and in real life is that you need enough cash to jump on opportunities when other investors are selling at discounted rates. (Consider both money markets and precious metals as ways to protect your purchasing power during turbulent times) We aren’t there yet, but a time will come when this scenario will play out, and the investors with the most patience almost always win in the end.