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