VOL. 128 | NO. 198 | Thursday, October 10, 2013
Rays of Wisdom
Dana and Ray Brandon
Lessons of the Great Recession
By Ray and Dana Brandon
Ray’s Take This last recession was a real wakeup call for everyone: once secure jobs evaporated, homes values were halved, retirement portfolios surrendered a decade’s worth of gains. It was a painful experience all around.
However, did we – as investors – learn anything to prevent the same thing from happening again, or at least to mitigate the impact? Maybe.
We clearly learned that stocks don’t always go up, and a mix of stocks and lower risk assets is still a better way to reduce risk. In fact, the closer you are to retirement, the more you should consider reducing risk in your portfolio. Further, accelerating your retirement date after a sudden investment run-up is a risky choice, as markets seem to overshoot at each end.
Buying a home is about owning a place to live rather than investing in a giant piggy bank. People who stretched too far when buying, or kept refinancing their homes to cash in on inflated home prices wound up in trouble when the housing bubble collapsed. Debt is not your friend. Your home is not an ATM, and planning on selling it to finance your retirement is not likely to work out well.
We discovered that no job is truly safe. Families need to have the ability to live on one income, because they might have to do just that for months on end. That also means building an emergency fund of easy-to-access money covering six to twelve months of expenses is a must.
The Great Recession also taught us that college graduates may be headed back home again, that just because someone is willing to lend you money doesn’t mean you can afford to repay the debt, and television “experts” don’t have the answers. Finally, don’t invest in something you don’t understand. Ever.
It’s up to us what we do with these lessons.
Dana’s Take For quite a while there, many of us were living so well that we forgot the difference between wants and needs. Actual needs are fairly few: a place to live, healthy food and water, transportation of some sort, basic clothing and household items, and general health care. Pretty much everything else is a want. In fact, enhancements on these basics are actually “wants” too.
You might want that big house, but families have survived and thrived in much smaller abodes. You may want a new car every few years, but you may not actually need a car at all.
Recognizing when something is a want rather than a need not only makes it easier to stick to a budget and save money, it can also make a change in your life. Instead of being burdened by all the possessions and services you think you need, you can focus on what you need the most – the companionship of your family and friends.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.