Universal Basic Income Is Going To Change The Way You Invest!

Updated: Apr 30, 2019

But this is only if it comes into existence.

How would an extra $1K a month help your portfolio?

What is the buzz?

If we based it on the red-hot social media buzz surrounding presidential hopeful Andrew Yang then we would be looking at the $1000 a month “freedom dividend” that he proposes, based on the oil dividend that is in place in Alaska.

The political take on this:

Since it was introduced as a focal point of the Yang campaign almost every other candidate, democrat or republican, has come forward with some modified version of the plan with differing ideas on when it will be needed for America and how it will work with or replace the current Medicare and welfare system. Most arguments for this involve replacing the current welfare system for this program which would ultimately mean it is replacing a system that is already in place. That means if America is still a capitalist country today, then it would remain so after the UBI program was implemented, with all its ideals preserved and intact.

Most economists believe we are at least 60 years from needing this, as the robots have not yet taken all the jobs and have not completely made humans obsolete in the work place. According to Erik Hille, Ph.D. Economics & Behavioral Economics, Southern Methodist University (2019), “The advantage of basic income over any other welfare system is that marginal productivity has marginal return and workers could still adjust their marginal work effort to accommodate humans mostly being obsolete. “ in his 2017 article. (linked here: https://qr.ae/TWI7rJ)

If this was to pass under any leader the impact on the economy would be studied for generations as this would be one of the biggest implementations of a system like this in the world. That said the world has seen a fair share of smaller tests and samples to come and go, the overall rating is still being determined, however the positives have often come in non-economic areas. Less alcohol abuse, closer family bonds, more united communities, etc.

Now that the explanation is out of the way lets focus on what happens if that proposal was to win out.

What would you do if you had an extra 1K a month?

It definitely won’t make you rich… that is... it won’t make you rich really fast, but with time and planning and a solid investment strategy you could be setting yourself up for the long haul into retirement and beyond.

$12k a year invested over the years from 18 years old to retirement ages easily gets you over 1 million saved up in retirement savings. If you invested every dime of it getting, a 6.5% return on average, you could have as much as 3 million in the portfolio by the time you retired. That is why this is becoming an extremely attractive idea, particularly for conservative politicians looking to get rid of Social Security and other entitlements that they feel handcuff the growth of the country.

Could you imagine if politicians required that at least half of the dividend payment must go into an a form of retirement savings such as an IRA account or 401K account?

The poorest of Americans could put away $6K a year invested into Roth IRAs or 401K’s and have $1 million dollars as a reachable goal for retirement, while still leaving around $500 a month to help with other living expenses. I am using 1 million as a base number and I am by no means saying that that is enough for everyone to retire on especially since inflation could easily chew that up over the course of a lifetime. But the numbers are compelling for anyone with the mindset of investing, considering the positive potential impact across all social classes.

Rich and Middle-class individuals/ families could legitimately see themselves building a retirement that has millions left in it to pass on to their loved ones,in addition to assets they would have built up outside of the dividend.

What is the biggest impact here?

Without the worry for “how will I make it through retirement”, middle class families could potentially find it more feasible to expand investing portfolios to include alternative investments in areas like startups or real estate, that would have a much wider and broader stimulus on the overall economy. Both the rich and middle class would likely see an increase in charitable giving, which again has a cyclical impact that would benefit neighborhoods and religious centers and communities across all social classes.

This could cause massive disruptions -what are the bad things that could happen

First and foremost – what happens if the social programs are deconstructed, the government agencies reduced in size and all that money gets distributed to people who have never proven themselves capable of managing their money responsibly. The only safety nets in place are now gone and all the responsibility is on the individuals themselves. If those individuals failed to manage the money properly or if the investments simply never panned out, then we could be facing a future where millions of Americans could be at risk of losing access to their dividend at a time when they need it most (assuming the dividend stops at retirement age for the individual).

A view of current day Hong Kong with its desperately under served elderly population is what America could look like in 40 years. If your not aware of the problems faced by Hong Kong, let me explain. Hong Kong is one of the most amazing displays of free markets in the world,and enjoys being one of the wealthiest places on e the planet. The flip side of that is that the wealth gap there is one of the most expansive on the planet as well. cut on the fringes of that wealth gap are a disproportionate number of elderly who are mostly unable to work but too expensive for the their children to take care of. this leaves the elderly forced to homelessness or dependence of charitable organizations for survival.

This highlights a danger for America, because even our solution to the wealth gap problem could instead of correcting it, accidentally exasperate the wealth gap by allowing the middle class to pull away from the poor while leaving the wealth gap between the poorest Americans and the richest in a state where it continues to grow to almost insurmountable levels over the course of multiple generations.

Cost of living

How much would the invisible hand (economics) move the mark on the cost of living if everyone was overnight able to afford higher rents? What about the costs of groceries? Gasoline? Other consumer staples? Healthcare?

The point being if the cost of living swallowed up the value of the dividend it would all have been for naught, as the problem would remain the same. No one would benefit, and the social issues would remain the same.

Cost of the UBI program

The cost of this program is estimated at around 3 gazillion trillion dollars. But there are huge debates on even this part of UBI though. The reason being is because for anyone paying into UBI in the form of taxes, a portion would ultimately come back to them in the form of their UBI payments. If the cyclical movement of money is accounted for then the cost is lower than most people think, however it still leaves the problem of who gets hit hardest and that is likely the rich.

Why is all of this even important?

The reason this is important is because the world is continuing to move towards automation. That path has changed the way humans work, interact, and live versus the humans of 100 years ago, and we expect will have even more changes to the lives of human 100 years from now. The real debate is at what point do humans become obsolete at everything they try to do? At what point is a computer or robot better at every work-related task and every job duty imaginable. What do we do with the projected 12 -20 billion people inhabiting the earth at that point. If they do no work but need to live and need the means by which to live, should economic surpluses gained by automation and technology be used to provide for them?

The wealth generated would be generational

My take...

The potential is grand, and the cost is likely to be astronomical, and maybe its too far away for me to really see it.

This stuff is too far away for me to believe it can happen while I am in the game. Even if it will be discussed in the next 3 presidential elections, the politics and plans will take time to come together. That said, I would love for an extra $1K a month to go towards my investment portfolio, but I won’t count on seeing it in my most active years.

But if… on some off chance, this was started in the next 7 years… I would fully take advantage of it, because even if I did nothing but hand it off to my kids when they turned 18 to help stimulate their investment portfolios, the impact it would have on their lives would be astronomical, and the wealth generated would be generational.

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