Personal finance gurus shout about the latest stock picks on MSNBC. Radio shows like Marketplace Money repeat the mantra that you are an idiot if you don’t maximize your contribution to your 401(k).
A recent book, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry,” by Helaine Olen, provides evidence that much of this advice is based on unrealistically optimistic assumptions about the potential for future returns.
Check out this great interview of Helaine Olen on the Daily Show.
Furthermore, organizations like As You Sow have been arguing that much of the optimism about the future of the stock market is based on denial of environmental realities. Here is an excerpt from As You Sow’s web site:
Coal, oil, and gas reserves that are claimed as assets on the balance sheets of the top 100 coal, oil, and gas companies contain over three times the total amount of carbon that scientists believe can be released without climate catastrophe.
If laws and regulations are adjusted to recognize this limitation, the vast majority of fossil fuel companies will be left with stranded assets in the form of unburnable reserves and underused infrastructure. Importantly for shareholders, the majority of such companies will be overvalued, presenting the risk of a “carbon bubble.” The valuation of these companies are the core of the Dow Jones and many other international financial indexes, so the impact of these stranded assets could ripple through national and international financial markets, just as the overvaluation of housing—or the housing bubble—did, with disastrous consequences.
As Michael Shuman says in Local Dollars Local Sense,
Millions of Americans are seriously asking whether they can continue to entrust their retirement and their kids’ education to such a rickety financial system. They want to put their money to work in the enterprises they know and care about. . . .
The financial experts running Wall Street insist this is silly. Local businesses—that is, those connected to a particular place and owned by geographically proximate members—are unreliable, the backwater of the old economy, not the places where anyone should place their money. But what truly has become ridiculous is continuing to pour our hard-earned dollars, month after month, into global businesses and stock market casinos that increasingly bear no relationship to our prosperity. Real prosperity must begin at home.