Does Money Bring Happiness?

 

The financial news has been decidedly grim for the better part of the last 18 months.  Many people have seen their wealth, both actual and perceived diminish substantially over that time frame.  While many more people are concerned about their financial future than they were before, has this reduction in wealth led to a reduction in happiness and it again raises the question of whether there’s a correlation between money and happiness.

 

Most psychologists and sociologists will tell you that happiness derives primarily from social interaction.   Those with good relationships with their family and friends generally describe themselves as happy.

 

As to the link between increased wealth leading to increased happiness, surveys have shown the following:

 

·         American wealth has increased dramatically in the 20th century, but on average,
Americans are no happier than they were a century ago.

·         Once your level of wealth allows you to have basic creature comforts, happiness doesn’t increase markedly as wealth increases.

 

So, if more acquiring more wealth doesn’t increase happiness, does increased spending help improve happiness?  We all know somebody that loves to indulge themselves in a little ‘retail therapy’ when they’re feeling down.  The reality is that spending can increase happiness, but it depends on where the money is spent.  For example:

 

·         Spending money on oneself can actually decrease happiness.  Too many people fall into the trap of having to work so hard to achieve the appearance of ‘wealth’ that their happiness is actually decreased due to stress.

·         Study after study has shown that $1 given to somebody else provides much more happiness than the same $1 spent on oneself.

 

Finally, from my completely unscientific standpoint as a financial planner helping clients acquire and maintain health, it is my firm opinion that money does not lead to happiness but instead simply magnifies your innate state of happiness.  If you are a generous, happy person when you have no money, there’s a strong likelihood that you will be equally or even more happy with more money.  If you are a naturally unhappy person, the increase in wealth will simply provide you more reasons to be unhappy and more things to complain about.

 

Money is clearly an emotional topic for a lot of people and this topic is one that has fascinated me since I started working in the financial services field and I would love your thoughts on the topic.

 

 

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How Barack Obama’s Economic Policies Might Affect You

Congratulations to Barack Obama on becoming our 44th President.  It’s truly an historic moment when an African American man can ascend to the highest office in the land and it shows how far this nation has come in the last 40 years when it comes to racism.  Whether you voted for him or not, you have to admit that it is once again going to be an interesting time in America.

Mr. Obama comes into the office with an economy clearly on the decline and financial markets still largely in turmoil and he admitted that it will be an uphill climb for his administration to fix these issues.  How that will be done remains to be seen, but we can glean some insight into his economic philosophy from his comments at the debates to the numerous press interviews he’s granted over the course of the campaign.  Here are some of the trends you can anticipate during the Obama Presidency.

Capital Gains Taxes

Throughout the campaign, Mr. Obama has said that he would like to increase the tax rate on long-term capital gains.  Currently the rate sits at 15% and Mr. Obama has said he might raise them as high as 28%, which was the rate when Bill Clinton took office.

What should you do?  If you’re convinced he will raise the capital gains rate next year, you should realize as many gains in this year as possible so you can benefit from the low current rate.

Income Taxes

Mr. Obama has said that he intends to reduce income taxes on those making less than $250,000 per year and raise taxes on those making more than $250,000 per year.

If you’re currently make less than $250,000 per year and you anticipate you will make less than that in 2009, then pushing income into next year should save on your taxes.  If you make more than $250,000 then you should push as much income into this year in anticipation that your taxes will go up under the Obama plan.

Infrastructure Upgrades

We all know that our roads and bridges are, in many places, in dire need of repair or replacement.  During the campaign, Mr. Obama indicated that one of the tools he might use to prop up the economy is to use Federal money to do those repairs, thus pumping billions of dollars to construction companies, heavy equipment manufacturers and construction-related jobs.

If Mr. Obama is successful, you should position a portion of your portfolio to take advantage of those industries that would benefit, like construction and equipment makers.

Barack Obama has certainly sparked the imagination of many Americans and it’s good to see a sense of enthusiasm out there again.  The few items we’ve listed is far from an exhaustive list and I’m sure that, as we transition from the Bush Presidency to the Obama Presidency, many other trends will begin to develop.  All we can do is to try to stay on top of those trends so that we can all benefit to the greatest degree possible as this country recovers from our current economic malaise.

America rocks!!

What’s a Terrified Investor Supposed To Do?

The Dow Industrial Average is down more than 35% so far this year, with an almost 679 point drop today alone.  There’s not doubt about it, but this market is in the midst of a full-blown panic.

Stocks are down, bonds are down or barely hanging on, oil and gold are down, real estate is down.  So given all the doom and gloom, what’s a shell shocked investor supposed to do?  Here are few tips to help you ride out the current market.

  • Don’t panic. Now is not the time to sell all your stocks.  If you were going to do that, the time was 12 to 18 months ago.  By selling now, you’ll simply lock in what is still a paper loss.
  • Remember your time horizon. If you’re young, this market will provide a great buying opportunity.  If you’re nearing retirement, you may want to follow the next piece of advice.
  • Scale back your equity exposure. Don’t sell everything, but it would be wise to have a little more cash than usual.  We currently have our clients with a lot more cash than usual so we can start buying again when the panic subsides.
  • Review your asset allocation. Some asset classes have gotten hit harder than others.  Now is a great opportunity to reallocate your portfolio without the tax bite you might get under more normal circumstances.
  • Talk to your advisor. If you haven’t spoken to, or heard from, your advisor, now is the time to be proactive and schedule an appointment to review the above items.  You’ll most likely leave that meeting knowing you’re doing everything in your power to minimize the damage of our current situation.

This has undoubtedly been a brutal market that has tested the stomachs of even the most seasoned professionals.  While you may have to make small adjustments to your current portfolio to reflect current circumstances, remember that your investment portfolio is built for the LONG TERM and that, over time, your patience and fortitude will be rewarded.

The Fed’s In A Tough Spot

The Federal Reserve voted today to leave its federal funds rate steady at 2%.  In addition, in its statement, the Fed gave no real indication of which way rates will go in the future because I’m sure they really don’t know at this point what’s the greater risk … runaway inflation or a severe recession?  Inflation hawks, including Dallas Fed President Richard Fisher, want the Fed to preemptively raise rates to cut off any chance of inflation.  Others feel that by raising rates too soon, any nascent recovery in the credit markets, as well as the broad economy, might be stifled and that leaving rates at current, historically low levels is the prudent course.

It seems at this juncture that with the exception of Mr. Fisher, who cast the lone dissenting vote, the Fed feels that the risks are equally balanced between inflation and recession and that, over time, one clear economic theme will most likely predominate.

If there’s one job I would NOT WANT in this world right now, no matter how much money you offered me, its the head of the Federal Reserve.  Mr. Bernanke and his fellow Fed board members are in a truly tough spot.

Over the last two weeks, we’ve seen some signs that inflation is moderating as the world economy slows.  Oil has come off its all-time high, as have other commodities like corn and copper, in response to what is clearly a slowing world economy.  If those trends continue, in the ensuing weeks that should translate into lower costs for gas, food and other goods as lower fuel and input costs work their way through the system.

While cooling commodity prices are encouraging, the Fed can’t become too complacent.  If they keep rates low for too long real inflation could take root and we’d have a repeat of the 1970’s ‘stagflation’.  It’s a case of ‘damned if you do and damned if you don’t.’

It’s becoming increasing obvious that any economic recovery won’t happen in 2008 and may not happen until mid-to-late 2009 the Fed is taking a prudent course until there is enough evidence one way or the other how to proceed.

Fed Cuts Rates Yet Again

 

After a week of market chaos, culminating in the fire sale of Bear Stearns, the Federal Reserve announced today that it was cutting its key interest rate, the Federal Funds Rate, by ¾% to 2.25%, the lowest rate in 5 years.

 

In its statement announcing the cut, the Fed cited the continued downside risk to the economy, suggesting it might be open to cutting rates further if necessary.

 

The stock market responded positively, even though many experts thought the cut would be a full 1%.

 

This rate cut is positive for many consumers in that it will lower the rate on things like Home Equity Lines of Credit and variable rate credit cards.  While you won’t see the results immediately, by the end of next month, the lower rate should have trickled through to your statement.  If you’ve been thinking about refinancing your home or you’re looking to buy, now might be the time to pull the trigger.

 

The flip side to this rate cut is that you’ll see the rate you get on your savings and money market accounts drop and the weakening dollar will increase the cost of imported goods to increase, so expect high gas and commodity prices to stay with us for a while.

It’s Official

Well, it’s finally official. According to a Wall Street Journal economic-forecasting survey, conducted from March 7 to 11, a majority of the economists polled said that the U.S. has finally slipped into recession. This marks a huge change from the last poll conducted only 5 weeks before.

To add to the evidence, new data shows that retail sales dropped .6% in February, the result of the sub-prime credit crisis, falling housing prices and increased prices for staples such as food and gasoline.

According to Ned Davis Research and their study, 10 post-war recessions have lasted an average of 10 months. At the same time, during these recessions, the S&P 500 has seen the following returns:

Year Leading to Recession: -4.3%

Six Months After Recession Begins -4.8 %

One Year After Recession Begins +3.2%

Year After Recession Ends +14.4%

As you can see, the pain in the markets is short-lived and the recoveries are usually robust. Remember these are just averages and each recession has its own characteristics. Let’s hope this is a mild one with an ever better rebound!!!