The Financial Sector Is A Waste

The financial sector is worthless, in the long run. In fact, over the past decade, if you had a certificate of deposit for the past 10 years, you most likely would've beaten holding Goldman Sachs GS over the same time frame. CD's returned 3.17% on average, while Goldman returned 2.78% on average over the same time frame, according to this Bloomberg article. This begs the question. Does the financial sector really add value to the economy? The founder of Vanguard, one of the largest mutual fund companies in the world doesn't think so. John Bogle, the legendary founder of Vangaurd, said, "The innovation in the productive part of our economy adds value to our society. The financial sector, by definition, subtracts value." Bogle, 81, went on to say that the financial industry had become too large a weighting in the S&P 500, and it needed to come back down to a more normalized level. The financial sector was 14% of the S&P 500 10 years ago, and had risen to 20% in 2007. It is now 16% of the S&P 500. "Overall they went up too high, and then they went way down, and where they go from here nobody knows," said Bogle. The sector “became dominant, and there was just no way that could continue because sooner or later people would wake up -- and they did." Bogle is saying that investing in financial companies over the long haul does little to add economic value, both personal and for the government. I am of the same mindset, that only companies that actually produce products can really add value to the economy. Sure a CDO or MBS is sexier than coal or iron ore, but which ones are tangible and will actually add value to your day to day lives? A piece of paper designed to essentially gamble on something, or something used to heat your home or build your cars? An economy that is built on services is not sustainable in the long run. Manufacturing is the true way to grow an economy. Germany is a perfect example of this. It has a strong manufacturing sector, led by companies such as Volkswagen, Daimler, and others. Technology is strong too, with SAP being one of the leaders. Yes, it has a banking and services sector, but it is not the majority of the economy like it is in the United States. Green technology is a great way to produce manufacturing jobs and increase the manufacturing sector in this country, as it cuts down the dependence on foreign energy, and eventually will lead to a new manufacturing boom in this country. Companies such as First Solar FSLR, A123 Systems AONE, Tesla Motors TSLA and others are going to be the wave of the future. Do you want to ride the wave of profits from a strong manufacturing sector, or get stuck in the mud of MBS paper? It's your call.