7 Things to Give Thanks For (even in this economy)
November 24, 2011Happy Thanksgiving! As a financial planner, I talk to a lot of people with all kinds of financial difficulties and I try to write about how to solve some of those challenges in this blog. But today is different. Thanksgiving isn’t about dwelling on what we don’t have, but about giving thanks for what we do. With the economy in the dumps, you may not feel that you have much to be thankful for, especially when it comes to your finances, but here are 7 things to consider:
It could be a lot worse. If you think 9% unemployment is bad, compare that to the 25% unemployment the U.S. faced during the Great Depression. At the height of the financial crisis, many experts were worried that the economy would fall into a similar depression. Instead, we suffered a less severe recession from which we’ve actually technically recovered. It’s true that there still aren’t enough jobs and that we need faster growth, but slow growth is better than no growth at all.
Taxes are near historic lows. If you’re fortunate enough to still have a job, you’re benefiting from record low taxes. Not only have the Bush tax cuts been extended, but President Obama has added some additional cuts of his own, including a two percentage point reduction in the payroll tax. While these cuts are meant to be temporary, it’s still money in your pocket that you can use to pay off debt or save for the future. You can also use this as an opportunity to convert some of your pre-tax retirement money into Roth accounts. You get to pay relatively low tax rates on what are likely relatively low account balances. When the market eventually recovers, all your gains can grow tax-free and escape potentially higher future tax rates.
Interest rates are too. If you’re fortunate enough to still have decent credit, this is a great time to be a borrower. You can lock in rock bottom interest rates by consolidating student loans and refinancing your mortgage (assuming you’re also fortunate enough to still have some home equity). If you’re planning to buy a home, these rates offer a perfect opportunity to combine a low purchase price with a low mortgage rate.
Stocks are on sale. What’s true for the real estate market is true for the stock market too. Unless you’re already retired, you’re a buyer so you should actually want stock prices to be as low as possible. The current low stocks prices are a phenomenal opportunity to accumulate ownership in great companies at bargain prices. Instead, we often get distressed looking at the value of our portfolios and forget that those values don’t mean anything until we actually sell. Until then, they’re just “paper losses.” Stocks are the only thing that people seem to want to buy when prices are high and sell when prices are low. Keep in mind that Warren Buffett has described his investment philosophy as being greedy when others are fearful and fearful when others are greedy.
Stock prices are also volatile. Why is that a good thing? If you’re contributing to your retirement plan then you’re dollar-cost-averaging into the market. That means that since you’re putting roughly the same amount of money into the market each pay period, you’re buying more shares of stock while they’re low and fewer when they’re high. This allows you to profit even when the market doesn’t go up. For example, to make the math easy let’s say that you contribute $100 every month to your 401(k) plan and buy into a particular mutual fund. In the first month, the fund is selling for $10 per share so you buy 10 shares ($100 divided by $10 per share). In the next month, it goes down to $5 per share. Instead of panicking and selling out, you stay the course and buy 20 shares ($100 divided by $5 per share). In the following month, the market comes back to $10 and you buy another 10 shares. You’ve contributed a total of $300 but you now have 40 shares worth $400 (40 shares times $10 per share) even though the price of your fund never rose after you started buying it. So yes, volatility is your friend.
America is still the place to be. Yes, you read that right. We may have a lot of problems but who would you really want to trade places with right now? There’s a reason that the rest of the world has fled to the U.S. dollar for safety. The European Union is facing even more severe fiscal challenges than we are. Just take a look at Greece and more recently, Italy if you want to feel better about our budget deficit. Both Europe and Japan are also facing a demographic crisis arising from an aging population. Developing countries like China and India may be growing but neither is exactly a pleasant place to live for most of their people. Both countries still suffer from widespread poverty and don’t have much of a social safety net. The Chinese have the additional problems of living in a heavily polluted police state. Our founding fathers were willing to risk their lives for our freedom. We should be grateful for ours even if it means having a few percentage points less of GDP growth. (It’s also a lot easier to have a higher rate of growth when you’re starting from a smaller base as China and India are.)
The future looks bright. Eventually we’ll emerge from this economic slump stronger than before. There are more scientists and engineers alive today than in all of history combined and they’re all connected by a global computer network. We can then look forward to new innovations that are currently being developed in areas like nanotechnology, biotech, and alternative energy. Don’t be surprised if you see oil replaced with cheaper forms of renewable energy and human life spans lengthen dramatically during your (expanded) lifetime. This could truly be an exciting time to be alive.
So yes, there’s a lot that we can all be thankful for. Now go and enjoy your turkey!