The S&P 500 - Peasant mechanics

Wow look at that there chart! S&P 500 going from ~85 ish in 1971 to 5,464 in 2024. That’s a one zillion percent gain!

HOWEVER when we look at the amount of money that Governments have produced - lets use M3 Money Supply.

That has also gone up!

If you have two people wanting to buy something, one has 100 dollars and one has 1,000 dollars. The price of the item for sale becomes - 1000 dollars. More money chasing the same amount of things to buy means the prices go up.

When you divide the S&P 500 by the M3 Money supply - you get the bigger picture.

The tool that I am going to use is built by the well known Solopreneur - Peter Levels. The tool in question is the website inflationchart.com

Peter is one step ahead of my investigation! With pre-built charts for every question I wanted to cover in this post. How convenient.

The default chart is M3 Money supply vs the S&P 500 index - Nice! If you haven’t clicked on the link above the chart - check it out inflationchart.com

What you see with the red line is the combination of S&P against money supply. If you look on the far left you can see the red line nominal amount of your S&P holding (the amount of money when you take away the impact of money supply increasing) you can see that it has just gone sideways. The S&P 500 has a very high correlation with Money Supply and the S&P 500 price rise is heavily attributed to the amount of money printing.

If you took away the printed money, the S&P 500 has been stagnant. Your real wealth has not increased.

We don’t want our wealth to go backwards. We don’t want our wealth to remain flat. We want our wealth to increase.

Imagine you were influenced by the government and you put your investments into a tax deferred account for the distraction of achieving a higher compounding earlier in life. It subsequently finds it’s way to the S&P 500.

You let the tail wag the dog.

Then you got to experience decades of experiencing lower and lower quality of life. You started eating cheaper foods. You cut back on travel.

This is not wealth. This is not being sovereign.

This is a peasant.

Sound familiar?

Is there a better way?

Yes, invest in high quality, valuable items that cannot be debased. Something that cannot be diluted and becomes more scarce with time.

Money as we know it is a short lived an terrible form of storing value.

Real Estate has advantages in playing the Debt based monetary system game.

Bitcoin cannot be debased.

Gold is debasable through mining, but not to the degree fiat money is.

They all come with varying forms of risk that should be accounted for.

Play around with the chart to visualize these facts.