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As a young person starting work and higher education, there is a lot of advice to begin saving and investing (the most common thing I hear is to invest into a Roth IRA but I'm Australian). Often it may also be to buy a SP500 tracked index or something of the sort.

This makes a lot of sense. Time is on the side of young people, and it provides a great way to increase a person's wealth. I think it's a fantastic idea. But if it's so great - why don't countries do it? They have even more time (sometimes) than the individual and have lots more capital. Why doesn't every government invest it's money into diversified investments in the stock market or other things? It would "generate free money" for things like universal health care. I've heard of Sovereign Wealth Funds, but they seem to be very, very small amounts compared to total budgets of most countries.

I think I'm missing something here. Why don't countries invest in shares/indices/gold/foreign property?

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    Where did you get the idea that countries don't invest in stocks, bonds, real estate, gold, etc.?
    – Flux
    Apr 11 at 10:52
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But if it's so great - why don't countries do it?

Oh sure they do. I think you'll find that many countries that have excess oil wealth have decided to invest. For example, see Government Pension Fund of Norway and other sovereign wealth funds.

Why doesn't every government invest it's money into diversified investments in the stock market or other things?

Not every country is as rich as Norway. They do invest but in such a case the investments are generally to strategically important local companies where government ownership is warranted. For example, bit over half of Fortum is owned by the Finnish government. Finland is a country that has no oil and thus no massive wealth. Thus, the government has wisely decided to direct the investments to strategically important companies instead of investing in an index fund, because then the ownership in companies belonging to the index would probably be below 0.01% -- not that much as for Norway.

Also, it is worth mentioning that Finnish government has large forest ownerships.

Why don't countries invest in shares/indices/gold/foreign property?

Investing in gold might not be such a good idea as an ounce of gold today is an ounce of gold in 100 years. However, a well-picked stock today is worth a lot in 100 years because companies, unlike gold, grow.

However, many central banks do actually have large deposits of gold. Historically it was used as a backing for the currency, but today we have fiat currency that is not backed by gold.

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    Countries are just like people. :) A small minority are prudent and brilliant investors (Norway, Singapore). The majority get by, year-to-year, with some planning and some improvising. And quite a few hopelessly careen from one financial crisis to another (Argentina, Greece). Apr 11 at 17:46
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Governments invest in other things besides stocks and bonds.

  • They have natural resources that they then sell the rights to.
  • They have land for parks that is then used for the enjoyment of all.
  • They own infrastructure such as roads, railroads, and airports and the like that is then used by their citizens and businesses.
  • Some nations have a lot of investment tied up in space assets such as weather satellites, and other space probes.
  • They have large science facilities to do all sorts of basic science research.
  • They make it possible for people to attend colleges and universities.

Most people don't buy one of the FAANG stocks because of the amount to Government bonds they own. They buy stocks because the company will generate profits. Nobody wants the government to own a large amount of company stock.

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  • Things like university education and welfare programs are also investments. Even the FAA is an investment.
    – user253751
    Apr 11 at 13:04
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Nations are not companies. Nations do not exist to make money but to improve the life of their citizens. A good life has many aspects but the most important ones are health, social security, basic infrastructure, education, housing, protection against crime, protection against aggressive neighbouring nations. Improvements on those aspects often improve the economic situation of a country as well:

  • Few people dare to do business in a war zone.
  • One cannot do much business without electricity, roads, etc
  • A high-tech economy can only be run if people are well-educated and it can be run easier if people are not required to jump through the hoops of 100 000+ $ student debt

For most countries, fulfilling their obligations on those aspects is already using up all their budget they can get through reasonable taxation. As most countries already borrow a lot of money through government bonds, it simply does not make much sense to deviate money to invest into the stock market. There simply is none left after paying all the bills. The nations that have a sovereign wealth fund and are directly investing, are all in the special situation that they are oil rich and have realized that this oil money will not last forever and they need another source of revenue in the future.

Another factor is time and visibility. A new highway will create a visible sign of your investment and it can be used immediately after completion. It will give people an advantage right now because they can get easier from place A to B. A stock market investment on the other hand is just a number that fluctuates all the time and it will really reap the benefits only after a longer time.

It is also important to note that - even if we assume it would make sense for a country to invest in the stock market - it is very hard to do so. Most government are only elected for a limited time of typically 4 years. A long-term investment therefore needs to span multiple governments and each of them has to resist the temptation to take out money of their investment and spend it on something that increases the ruling party's popularity.

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Most governments don't actually have any extra money sitting around. The U.S. for example raises a certain amount of money each year in taxes but actually spends an even greater amount, which it pays for by creating money out of thin air. It would be hard to justify printing money just to invest it because the government wouldn't get any benefit since they can just print more money later when they actually need to use it instead. Creating money to invest would simply benefit the wealthiest members of society since they are the ones who own the most stocks and would get the benefit of the stock prices inflating due to the government's investment.

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  • I think you'll find that it's not the wealthiest members of society (at least the US) that own most stocks, it's things like retirement accounts. And for the stocks the wealthy do own, you often have reversed causality. That is, they don't have money in stocks because they are wealthy, they have become wealthy because they invested in stocks over a long period.
    – jamesqf
    Apr 11 at 16:38
  • @jamesqf I'm not sure where you're getting your info from because it's simply not true. Barely 50% of Americans own even the smallest amount of stock, in retirement plans or otherwise. Meanwhile, 10% of Americans hold 84% of the value of the stock market. See www.forbes.com/sites/teresaghilarducci/2020/08/31/most-americans-dont-have-a-real-stake-in-the-stock-market/. And stock ownership is strongly correlated with income, suggesting that it is wealth that drives stock ownership. Of course, it is true that owning stocks does tend to make people even more wealthy.
    – Daniel
    Apr 11 at 17:38
  • For instance here: taxpolicycenter.org/taxvox/… (Just the first hit of many.) So unless you lower your threshold of wealthy to include people (like me) who have over time accumulated investments enough to provide a reasonable middle-class income in retirement, the math doesn't work. As for the 50% who don't own stocks, some are presumably still young enough not to have accumulated much. (I had basically nothing until my mid-30s.) Others choose to spend rather than accumulate.
    – jamesqf
    Apr 12 at 21:31
  • @jamesqf that article says exactly what I'm saying. The headline of the article is literally "Who Owns US Stock? Foreigners and Rich Americans." The article also says "The Fed found that the average household in the richest tenth of US households, by net worth, owned vastly more stock than those in the bottom half." It says retirement accounts owned 30% of U.S. stocks, but not all retirement plans are equal. The wealthiest Americans have the healthiest retirement plans.
    – Daniel
    Apr 12 at 22:46
  • In any case, the answer stands even if what you're saying is true. Governments spend more money than they have. In most cases they do this because they assume the benefit coming from their deficit spending outweighs the cost of inflation caused by creating more money. If the government created money just to invest, it'd simply be causing inflation now for some undefined future spending rather than creating inflation at the time the money is needed.
    – Daniel
    Apr 12 at 22:55

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