December 31st, 2012.. New Years Eve...11.15 AM... I have procrastinated for several weeks now (not a good start for that resolution) on getting this latest edition posted and I am determined to get it done before 2013. With all this fiscal cliff talk and “what happens if we go over the edge” doomsday talk, you'd think there'd be plenty of material, and you'd be right, but I just couldn't figure out what I wanted to say about it.
Then suddenly, the inspiration came to me while briefly tuning into one of the “financial news” networks this morning. Of course there was even more of the “cliff” hype that we've been subjected to every day now for weeks and today they were using a scene from the film Braveheart to help with their interpretation of what was about to happen. It's the scene where the entire English army is charging across the field towards an obviously ill equipped and out-numbered horde of Scottish rebels. Certainly the suggestion was that when they “met” things were going to get ugly.
I watched and I thought “how ridiculous” it is that reporting on a financial network has come to this. I am not sure who was supposed to be the “cliff” and who was supposed to be “going over it” and in this particular case I think that was a battle the Scotts won. But even if they did, they had some setbacks after that and it took some time before their overall objective... their freedom... was achieved. This I believe may actually be analogous to planning for your future. You have a plan and move forward. Setbacks may occur, but a good plan tries to account for them and if you stick with a plan you have confidence in, your chances for success are greatly improved. No matter what has happened between December 31st and the time you read this, I don't believe this will change.
In a recent survey (2012 Household Financial Planning Survey) prepared by the Consumer Federation of America, some interesting things were observed. When looking at all family income levels, people who had developed comprehensive plans were more confident about their future. People making $50,000 to $99,999 per year of income and who had financial plans felt as comfortable with their financial circumstances as those who made over $100,000, but who had engaged in no planning. Only 31% of respondents had developed a comprehensive plan. It might not surprise you to know that the report also revealed that those who had plans or had done actual planning were saving money at a higher percentage than their peers who had not. Does any of this really surprise anyone?
We can't know what will happen after this “event” occurs, but you can be sure when it passes, another one will be looming (the next one is dealing with “debt ceiling” once again in March). We can speculate that any combination of significant tax increases or significant decreases in government spending could be recessionary no matter what the cause. But remember, in a generally free economy, recessions are as normal as the recoveries that have always followed. It's a cycle we can count on, but we just can't predict when the ups and downs in a cycle will occur. There is a great deal we cannot control as every day citizens. What we can control is how we plan and how we react.
As you think about the year ahead and as you consider planning your financial future, remember just a few things:
I hope you and your family have wonderful and prosperous New Year. I'll begin the New Year with a new name for my firm and two partners... one old and one new. We're all very excited about the inception of Brentwood Financial Partners. You might have noticed the new email and website address at the top of the page. Phone numbers and location remain the same.
Then suddenly, the inspiration came to me while briefly tuning into one of the “financial news” networks this morning. Of course there was even more of the “cliff” hype that we've been subjected to every day now for weeks and today they were using a scene from the film Braveheart to help with their interpretation of what was about to happen. It's the scene where the entire English army is charging across the field towards an obviously ill equipped and out-numbered horde of Scottish rebels. Certainly the suggestion was that when they “met” things were going to get ugly.
I watched and I thought “how ridiculous” it is that reporting on a financial network has come to this. I am not sure who was supposed to be the “cliff” and who was supposed to be “going over it” and in this particular case I think that was a battle the Scotts won. But even if they did, they had some setbacks after that and it took some time before their overall objective... their freedom... was achieved. This I believe may actually be analogous to planning for your future. You have a plan and move forward. Setbacks may occur, but a good plan tries to account for them and if you stick with a plan you have confidence in, your chances for success are greatly improved. No matter what has happened between December 31st and the time you read this, I don't believe this will change.
In a recent survey (2012 Household Financial Planning Survey) prepared by the Consumer Federation of America, some interesting things were observed. When looking at all family income levels, people who had developed comprehensive plans were more confident about their future. People making $50,000 to $99,999 per year of income and who had financial plans felt as comfortable with their financial circumstances as those who made over $100,000, but who had engaged in no planning. Only 31% of respondents had developed a comprehensive plan. It might not surprise you to know that the report also revealed that those who had plans or had done actual planning were saving money at a higher percentage than their peers who had not. Does any of this really surprise anyone?
We can't know what will happen after this “event” occurs, but you can be sure when it passes, another one will be looming (the next one is dealing with “debt ceiling” once again in March). We can speculate that any combination of significant tax increases or significant decreases in government spending could be recessionary no matter what the cause. But remember, in a generally free economy, recessions are as normal as the recoveries that have always followed. It's a cycle we can count on, but we just can't predict when the ups and downs in a cycle will occur. There is a great deal we cannot control as every day citizens. What we can control is how we plan and how we react.
As you think about the year ahead and as you consider planning your financial future, remember just a few things:
- The only real definition of “money” should be “purchasing power.” If your money is languishing predominantly in low interest, fixed income investments because you're scared - you should be - because while you might be preserving “principal”, on an inflation adjusted basis, you are losing money. You might say you are going broke safely.
- A diversified portfolio of quality equities or stocks ...representing ownership in quality companies...has been more effective than almost any other asset class in preserving and enhancing purchasing power over long periods of time.
- Volatility is the price you pay to experience a better long term return. Since WWII, average declines in the market of 15-20% have occurred approximately 1 out of every 3 years. About one out of every 5 years there's been a decline of about 30%. It has never yet been the case that a recovery did not follow any decline.
- The dominant factor in long term, successful, real life outcomes is more likely affected by your behavior as an investor and how you react to difficult times than by the actual performance of your investments.
I hope you and your family have wonderful and prosperous New Year. I'll begin the New Year with a new name for my firm and two partners... one old and one new. We're all very excited about the inception of Brentwood Financial Partners. You might have noticed the new email and website address at the top of the page. Phone numbers and location remain the same.
E-mail Kimber with any thoughts you may have regarding this post.