“The Marley’s were dead to begin with.” I love a great opening line and this one by Dickens has to be one of my favorites. In his classic story, Dickens introduces us to a man named Scrooge, a selfish old miser that no one likes and everyone fears. As the story progresses Scrooge learns a great deal about himself and what he sees he dislikes as much as everyone else does, and so he commits to change. Unfortunately, it isn’t always easy to change once others have formed an opinion of you. In one of the memorable scenes from the Muppet’s version of this story (our family favorite), a repentant Scrooge goes to Bob Crachit’s house to make amends. When Mrs. Cratchit, played brilliantly by Miss Piggy, answers the door, Scrooge declares, “Bob Cratchit, I am about to raise your salary.” Not hearing his words because she had already determined Scrooge was up to no good, Piggy angrily responds, “And I am about to raise you right off the pavement.” As Piggy curls her fist and winds up for a big swing at Scrooge she suddenly realizes his good intentions.
Our family watches this movie every Christmas Eve but this year we saw a bit of a precursor as congress passed a huge revamp of the tax code. Trump and house speaker Ryan both proudly declared that this bill, with its lower corporate tax rates would spur a huge economic boom while also lowering taxes for over 80% of Americans. In essence they promised to “raise the salary” of workers across the country. Maybe no one was listening because most media reports I saw reminded me of Miss Piggy in her doorway winding up for a strong left hook.
Time will tell where this all ends up because there are so many moving parts in our economy, but I would like to make a comment about this bill purely from an investor point of view. Ronald Reagan was fond of the quote, “If you want more of something, tax it less.” Well, businesses are about to be taxed less so we will find out if that saying is true. I am a small business owner. I understand very well what it means to balance budgets, meet payroll and pay taxes, through good times and bad. I have already told my staff of our plan to raise salaries as a result of this bill. In addition, we expect to be able to invest more in future growth with dollars that heretofore have gone to taxes. Multiply this by the 26 million other small businesses in America and add in the large corporations, and I have to believe investors (and workers) are going to enjoy the outcome.
The social implications of tax bills are for politicians to debate, and there are good people on both sides, but looking at the economic side of this one as it relates to investors, I am very optimistic that this congressional gift will not be a humbug.
While hiking in Switzerland years ago, Launa and I were surprised to see someone jump from a nearby cliff wearing what we later learned was called a wing suit. Just before hitting the ground he pulled a small parachute and landed on his feet, to great excitement from a nearby crowd. This was followed by several more performing the same feat, each appearing to be in a contest to see who could get closer to the ground before pulling the chute. As we observed this amazing, and in some ways disturbing activity known as base jumping, I wondered how long it would take before a jump would end in tragedy.
It has been a few years since that day and I often go back and look at the video we shot of those jumpers, wondering how many of them are still alive. It isn’t that I wish misfortune on anyone, but I am a firm believer in Stein’s Law. Herbert Stein was an American economist and his law was written for investors, but it applies across the board to every other activity. His law states, “If something cannot go on forever, it won’t.” I am pretty confident that base jumping, with its zero margin for error, is not an activity someone can do for a long time without a disaster happening.
Sometimes the investing world gets its own version of base jumpers. These individuals see something exciting going on and feel the need to jump into the action without fully considering the risks involved. At first it may seem like a good idea and the more times another participant has a successful landing, or in economic terms – makes money – the more additional investors want to join in. It’s human nature to not want to miss out on a perceived great opportunity.
Thinking back on my own experiences in the investing world, I remember the disastrous silver crash of 1980, the dot.com bust of 2000 and the real estate market bubble of 2006, to name a few. In each of these situations investors got so caught up in rapidly rising prices of an asset that they forgot to consider if prices had any relation to real value. They saw other people jumping in and walking away with huge profits, and so they wanted to have their own shot at the same profitable experience. They failed to recognize that a rapidly rising price may not coincide with rapidly rising value.
Base jumping is an exciting activity, but how long can one continue to survive with so much risk? Likewise, jumping into a sky-rocketing investment seems like a fun idea, and it can be tempting watching other investors making money without you. But before you strap on that financial wingsuit, consider Klein’s Law. Ask if these rising prices can go on forever and if not, how will it affect you if it happens to be on your personal jump that it all comes crashing down.
I remember many lessons in my youth about postponing today’s wants in order to reap a better reward tomorrow. The ability to do so is often a defining quality that separates those who are successful in life from those who are not. It is easy to look at others and think how lucky they have been; to be jealous of those who have great educations, wonderful jobs, or a solid retirement portfolio. We can feel sorry for ourselves and think that others have had bigger breaks, more valuable connections, or richer uncles. In most cases however, it comes down to sacrificing something today for something better tomorrow.
Some years ago check cashing stores began to become very popular. People who could not wait until Friday to get paid could, for a fee, cash a postdated check a week early at one of these establishments. Customers who frequented these businesses were often unaware of the high costs of the service, yet were likely the least able to afford it.
A new disturbing trend is developing today in which workers can use smart phone apps to get paid on a daily basis rather than waiting for payday. A popular fast food chain recently reported that 70% of its employees were currently using the app, which charges a $2 per day fee. The chain reported the wonderful results the app was providing, stating that absenteeism was way down as employees were much more likely to show up for work if they could be paid immediately. Though it may provide benefits to the restaurant, little benefit comes to an employee whose money management skills are already so poor that they need to be paid daily to survive. With the growing popularity of apps such as these could we be creating an entire generation that has no ability to budget, or to save?
If you cannot save money, if you lack the discipline or skills to budget at even a minimal level, then it will always be difficult for you to obtain the lifestyle you desire. It will also leave you constantly at the mercy of the ups and downs of the economy. You will have no ability to weather the storms, nor the benefit of being able to take advantage of opportunities that come your way.
Consider this. If your income was suddenly cut off, how long could you pay your bills before running out of money? If it is 6 months give yourself a high five. If it is 3 months you are doing better than most. Keep up the good work. If it is less than one month then you are living on the edge of a precarious cliff and need to adjust your financial habits immediately. We are currently experiencing a strong economy. Use these good times to set aside some funds and prepare yourself for the tough times that most certainly will happen again.
At this time of Thanksgiving, I feel to share some thoughts about being thankful. Gratitude may not seem important from a financial planning perspective, but I believe it sits near the very top of the desirable qualities which can greatly add to an investors success and happiness.
I have often said I have never had a client run out of money. With that in mind, I ask people to recognize the high probability of success for those who are willing to follow even a modest financial plan. It is always sad when someone with adequate resources for a good life continually complains or worries about not having enough. I sometimes jokingly tell people that success in investing is not measured by how big of a boat your kids buy after your funeral.
I remember a couple some years ago, not unlike many other couples I have known, wherein the husband was a complete miser. He complained continually about not having enough money, and worried daily about the dollar value of his account. His wife, on the other hand, was always cheerful and appreciative of the good job her husband had held for 35 years, and the abundant retirement they had been blessed with. She enjoyed life and wanted to use the resources they had to build good memories together and with their kids. He, on the other hand, was unhappy that others appeared to have more, and that what he had was far less than what he had hoped for. Even though in his 70’s, his focus remained on trying to build ever more wealth at the expense of enjoying the wealth he already had. He would not allow his wife to spend the money they had saved, less it reduce his portfolio in the years to come.
When that gentleman reached 75 he passed away. To the very end, he never really appreciated the wonderful life he had. His lack of gratitude made it impossible for him to enjoy the fruits of a lifetime of hard work and saving.
Within a couple months of his death his wife came to visit me. She had just returned from a lovely cruise with her married children and wanted to show me the photos. She was never one to be wasteful, but she appreciated life and learned to enjoy the retirement funds they had carefully saved. She and her children were finally building the memories she always wanted her retirement to provide.
If you are not grateful for what you have, you can never fully enjoy it. Like the miserly man you will spend your life always looking over the fence at those ever greener pastures. You may even take risks you shouldn’t take to get to that pasture, never realizing how green the grass is right beneath your feet. Take time this holiday weekend to be truly grateful for all you have been blessed with, and you will find that life magically gives more to those who appreciate what they already have.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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