In recent weeks, you may have heard of the bursting Bitcoin bubble and the faltering stock market. These types of events are naturally associated with recessions, job losses, and people filing bankruptcy. The sudden turn in markets isn’t nearly so ominous, but there are some things debtors should know about financial assets in New York bankruptcy, and they should keep some things in perspective regarding advice for saving money.
First, the practicalities of investing (read here for digital currencies as assets for that topic specifically). Any money people invest in a financial market can vanish rapidly leaving them with little likelihood of recovery. Losing money this way probably won’t push most people into bankruptcy because they usually have a cash cushion to turn to for their bills. For this reason, debtors who do have financial assets probably won’t keep much of them in bankruptcy. There’s no explicit exemption for stocks, bonds, options, futures, commodities, foreign currencies, digital currencies, or similar derivatives. Debtors with these assets are advised to use exemptions and other debts to soak up excess cash.
Next, what to make of investment advice to debtors for saving money. In general, financial advisers tell young people in particular that stocks are almost always a good investment. The older one gets the more one should diversify into safer asset classes, namely bonds. One recent example of this type of thinking comes from a NerdWallet.com article advising young Americans that not investing in the stock market could cost them more than $3 million over their lifetimes. It was published in mid-2017, well before the recent stock-market bust.
The article took the last 40 years of financial-market growth rates and volatility, and it ran more than 10,000 simulations of how investors would fare through that kind of environment. Each investor began as a 25-year-old earning $40,500, which is the medial income at that age, and saved 15 percent of its income. The results were pretty surprising: 99 percent of the time, investors at least broke even, with 95 percent earning $1.67 million over 40 years. One-quarter walked away with at least $8 million. By comparison, investors who put their money in savings accounts earned $1.3 million. People who simply hoarded cash kept just $560,000.
From this perspective, yes, the stock market is better than a savings account more than nineteen times out of twenty. In all likelihood, the twentieth investor did poorly because of a bad random draw of the straws that a prudent investor can avoid, like not investing in Bitcoin when everyone else is. (Hint: By the time you hear that one asset is the hot investment, you’re late.)
The rub, though, is that the last 40 years have been unusually good for financial markets, aside from a few bubbles and stagflation. Earlier eras have not always been so prosperous, and some countries in NerdWallet.com’s 40-year period have done poorly too, such as Japan starting in 1989. The best advice is, if you have any control over your investments (401(k), IRA, etc.), keep your head up and manage them strategically. Try to find credible people who can identify asset bubbles to stay clear of.
The NerdWallet.com article is here.
The stock market isn’t the economy; it just measures beliefs about future corporate profits. For their part, digital currencies have no fundamental value, so invest in those only if you want to gamble.
At the same time, if you do have some investments, and you’re experiencing financial difficulties at the same time, then consulting with an experienced New York bankruptcy lawyer can help you assess your options. Circumstances such as those are more complex and chapter 7 may not be the best option.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
