| p>You can feel it in the air. Long-awaited change is | | | | make important financial decisions based on that |
| afoot. In the Northeast, the summer that almost wasn't | | | | assumption, you will end up better off in the long run. |
| has finally arrived with a vengeance, just in time for | | | | Not surprisingly, it never came up in conversation, but I |
| "back to school." And, although lagging job growth | | | | doubt my Gramma knew anyone who owned stocks, |
| continues to inflict pain (perhaps more than in the past), | | | | bonds, or mutual funds. Back then, middle America |
| the recession that wouldn't end is finally showing signs | | | | simply didn't go there, didn't need to go there. Bank |
| of abating. And with it, a shift in national attitude that | | | | savings accounts were the order of the day. But with |
| has been bubbling beneath the surface has begun to | | | | defined benefit pension plans being replaced by |
| emerge. A couple I met with last week said it | | | | self-directed 401k plans and a growing need for |
| beautifully: | | | | personal assets to keep up with inflation as people |
| "We're not saying we're glad the recession happened, | | | | fund their own, markedly longer, retirement periods, |
| but the truth is, it was a timely wake-up call." In other | | | | most of us are investors now, whether we want to be |
| words, enough of the grieving over what's been lost | | | | or not. |
| and what never should have been and whose fault it | | | | So while Gramma never had to try to assess her "risk |
| was. It's time to accept what is, acknowledge | | | | tolerance," today we absolutely need to get a handle |
| whatever role each of us might have played, and, with | | | | on this if we're to invest successfully (i.e. avoid buying |
| the newfound wisdom gained through surviving this | | | | high and selling low.) And now is a great time to do it. |
| crisis, take action to improve from here. | | | | With the stock market going in a favorable direction, |
| But take care! In parallel to this positive shift are hints | | | | many of us have moved to the far side of panic, and |
| of backsliding to the old ways that helped get us into | | | | cooler heads prevail. At the same time, the market is |
| this mess. So I propose we kick off the school year | | | | not so overheated that anyone's fooled into thinking it's |
| with a plan for capturing the painful but important | | | | an "all up all the time" proposition, and memories of |
| lessons the recession taught us. Some of these are | | | | wildly plunging markets are still fresh. |
| principles that previous generations knew well, but that | | | | Before those memories fade, take an objective look |
| somehow were lost along the way. Others are the | | | | back at what befell your portfolio over the last year, |
| product of a new economic environment, and the | | | | and how you reacted to it. Did you lose sleep? Sell |
| trend toward a "post-safety net" world. | | | | everything? Sit tight? See it as an opportunity? |
| Gramma had it right... Some of the old chestnuts have | | | | Although it seems unlikely we'll experience this kind of |
| stayed around for a reason. They were sound advice | | | | volatility in the near future (after an 80-year interval |
| in the past, and they're sound advice now. "If it sounds | | | | since the prior time), know that it can happen. At any |
| too good to be true, it probably is." "Trust but verify." | | | | time. And decide whether you're willing and able to go |
| "Never invest in anything you don't understand." Yes, | | | | through that again, or would prefer to trade off some |
| Bernie Madoff is the obvious case in point, but | | | | expected return in exchange for less volatility. |
| individuals ignoring these tenets get burned on a smaller | | | | Finally, one of the big lessons this economic crisis |
| scale all the time, as discussed in a recent Boston | | | | reinforced was an idea that first arose for me in the |
| Globe article. | | | | post-9/11 economic bust: "We're all self-employed |
| "Spend within your means," Gramma might have said. | | | | now." Yes, some of us are officially self-employed, and |
| But I also like the way this 20-something put it: "I'm | | | | projections show that more of you will be joining our |
| actually finding power in not spending money these | | | | ranks, whether on purpose or by accident. In the |
| days." Now that's a shift! Not sure where to start? | | | | meantime, even if you have a full-time job, in many |
| Read the tongue-in-cheek article, 20 Ways to Waste | | | | industries, you can't be sure it will exist 2 years from |
| Your Money, from Kiplinger magazine. Next, in a twist | | | | now, let alone 5 or 10. The old job loyalty/stability |
| on conventional wisdom, look not just at discretionary | | | | contract is really broken for most workers, and that |
| expenses but also at presumed fixed expenses, which | | | | means a shift in financial planning strategy toward one |
| often go unquestioned, as laid out in an article by noted | | | | that more closely resembles that of the self-employed. |
| financial journalist Jean Chatzky. Read "Your Money or | | | | In particular, it's no longer safe to assume a steady |
| Your Life," an oldie-but-goodie whose message | | | | income so, like self-employeds, W2 employees need |
| resonates more than ever. Visit the New Means | | | | to create their own safety nets to better weather the |
| Facebook page for lots more ideas. However you do | | | | down periods. This means beefing up your Emergency |
| it, aim to take advantage of The New Frugality while | | | | Fund and holding more assets outside your |
| it's still in vogue, and societal support for this lifestyle | | | | tax-deferred retirement plan. Even if this means you |
| makes it easier. | | | | pay a little more in income tax in any given year, being |
| "What goes up, must come down." Or put another | | | | able to tap this savings -- without taking a costly early |
| way: "Bubbles will burst. No exceptions." The Dutch | | | | withdrawal from your 401k -- will get you through the |
| learned this from tulip mania long before Gramma was | | | | hard times with a lot less angst. |
| born, but somehow, we insist on learning it the hard | | | | Internalizing these lessons and making them stick won't |
| way again and again. | | | | be easy. Irrational exuberance will return. When the |
| This rule has a lesser known, but equally important, | | | | next bubble starts growing and looking like it will |
| corollary: "What goes down, must come up." OK, well, | | | | continue to do so forever, it will be hard to resist the |
| that one's not guaranteed, but things do tend to run in | | | | urge to go along for the ride. Don't be fooled. |
| cycles. If you keep this in mind the next time it looks | | | | Uncertainty still rules; it always has and it always will. |
| like bad times will last forever, and you're tempted to | | | | Plan accordingly. Your Gramma would be proud. |