Wes Moss: Three obstacles to a healthy economy

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

It’s hard to believe we’re almost halfway through 2012. Even harder to believe it’s been almost four years since we entered our present state of financial uncertainty, as dated from Lehman Brothers’ September 2008 bankruptcy. So what’s the prognosis for a return to a healthy investment environment? We face three serious obstacles, but I’m still optimistic we’ll see better days.

The Saver’s Quandary. The Federal Reserve intends to keep rates low until the economy recovers, whichit figures will take at least until 2014. As a result, money invested in savings accounts and money markets is earning a negative net interest after inflation. There are some shelters from this storm, including owning “the right” bonds (i.e. high-yielding, floating-rate, and inflation-protected bonds). Investors might also consider alternative uses for their money, such as using some savings to pay down a mortgage or even buying rental property.

The Euro Zone mess. If debt-ridden Greece abandons the Euro, it might trigger a domino effect with other weak economies. As a result, we could see European bank defaults and more social unrest. We would certainly see a dramatic drop in consumer confidence and demand, which could have a direct impact on the U.S. economy. However, Germany and the other strong European economies are unlikely to let the entire Euro-zone unravel, as the Germans are already on the hook for hundreds of billions of Euros for the relief effort.

Uncle Sam headed for a cliff. The U.S government is poised to suck $540 billion out of the economy via a series of tax hikes and spending cuts at year’s end. These include the expiration of the Bush tax cuts, additional taxes mandated under the new healthcare policy and military spending cuts. This would almost certainly result in another recession. Even the Congressional Budget Office called this confluence of events a potential “catastrophe.”

But self-interest will prevail. Politicians always figure out a way to dodge such oncoming trains – often at the last minute. The powerful senators who represent defense-heavy states, including Georgia, won’t want to start 2013 with full-scale layoffs from large defense contractors. And no lawmaker wants to start 2013 out with their constituents getting slammed with a bigger tax bill.

Yes, things are a little crazy right now. But they will work themselves out. Those who are tempted to ditch a long-term investment strategy based on recent events should heed the advice of great radio commentator Paul Harvey, who observed, “In times like these, it’s helpful to remember that there have always been times like these.”

View today’s turmoil and uncertainty not as signs of the apocalypse but as an opportunity to build your portfolio at bargain prices.

Are you still contributing to your 401k and other investments vehicles?

– By Wes Moss, for Atlanta Bargain Hunter

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12 comments Add your comment

Jack

June 18th, 2012
6:05 am

My RMDs go to municiple bonds.

independent voter

June 18th, 2012
7:39 am

yes dollar cost averaging in my IRA.. big cap US. mutual funds.. I like SGROX and YAFFX with some JATTX and MAPIX.. LSBRX for a bond fund.

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Barner B. Jones

June 18th, 2012
9:55 am

What about an extremely knowledgeable and respected investment advisor who charges low fees such as Richard Ferri?

Bernie

June 18th, 2012
1:53 pm

Wes, Unfortunately that is a fourth obstacle as well. The Republican Party. The Republicans are willing to sit on their hands and not do a thing to help the American Economy for fear of giving President Obama any type of financial accomplishment so close to a national election. Instead of upholding their sworn OATH, they are more concerned that this President serves only ONE TERM and devised a plan to undo any and all of his Presidential decisions, as if he were not a legitimate elected official of this GREAT NATION.

Lanier

June 18th, 2012
1:58 pm

PS– The honor system didn’t work out as planned Barney Frank and Harry Reid, advocates for fair housing

Lanier

June 19th, 2012
9:57 am

June 19th, 2012
9:51 am

Unfortunately, the housing crash is the primary cause of the nation’s deep recession and this city’s lag with unemployment. They are directly corelated. To undetstand this, one must look at the metro dynamics when considering growth. For example consider an area like Oak Grove near Toco Hills or Fernbank where there is very, very little foreclosure rate. An area like Lakeside High school near Oak Grove has very little foreclosure and subsequent SAT scores at LHS are extremely high for the state. Then compare, for example, to Columbia High School in South Dekalb where foreclosure rates are highest in the city, state and in the nation, and SAT scores are very low. Why is this? Georgia is a national leader in foreclosures. We must honestly see this trend for what it is and study to understand why this occured in Atlanta and cities like south Chicago — to be honest with ourselves, so we can see what the real problem is with our city’s economic slump and lack of employment opportunities.

The Gambler

June 19th, 2012
2:16 pm

First of all Wes….its fine and dandy for your obstacles. Your forgetting one big thing that outweighs everything. ITS CALLED MISTRUST OF GOVERNMENT. Forgive me if you will but I dont trust one single thing that comes out of their mouths. Congress Lies……every last one.

Jennifer

June 19th, 2012
6:12 pm

My 401k does not match, is expensive, and performs poorly. So I am ditching it in favor of a ROTH IRA so I won’t continue to hear that giant sucking sound of money from my pocket to those raiders and thieves in the financial industry also known as TPA’s and companies in Indiana pertending to be “life insurance, annuities, and retirement planners”.

Lanier

June 20th, 2012
10:08 am

Enter your comments here

Lanier

June 20th, 2012
10:19 am

@Jennifer – forget 401K, look at your recent home appraisal in Atlanta (talk about loud sucking sound?) compared to, say Dalllas or Hartford, CT where home values haven’t suffered nearly as much as Atlanta. Its Oak Grove/Lakeside/Emory/N Druid/Roswell/Dunwoody/Alpharetta versus Stone Mountain/Lithonia/South Fulton/Henry Cty/etc.

South Dekalb has one of the highest foreclosure rates in the entire nation. The fair housing/honor system trend didn’t work out because you can’t buy a 325K home with 25K income. Smart planners in Oak Grove to Alpharetta knew this. Areas like South Dekalb have absolutely trashed the entire metro city of Atlanta. What is the distinction? “Content of Character.”

Lanier

June 20th, 2012
10:21 am

PS – Look at a foreclsure map 2010 of metro Atlanta to see where the foreclosure types are and the non-foreclosure types are.