Like many of you Thom and I have been watching the stock market go down and then up again during this pandemic. We’ve also read about how some of our country’s leaders are using their prior knowledge to “rig the system” while the government is throwing billions at the economy to (at least temporarily) keep it all propped up. Clearly some people are making gobs of money during this situation in spite of the fact that many others are experiencing tragic financial, emotional and health circumstances. But are those the only two options? Surely it is possible to invest in the future in ways that are both more equitable and self-sustaining? Surely it is possible to cover our own needs without throwing all other people under the bus. Those thoughts led me to consider how and why most of us invest, as well as a few SMART ways we can strategize for the future.
Underlying most investment strategies is the use of leverage. Know what I mean? In order to buy something you have two choices—save up the money to buy it outright or borrow the money and “leverage” yourself into something you don’t yet own outright—but can use as if you do. Things that we can buy using leverage can be a house, a car, stocks, and real estate. Our entire country has perfected the use of leverage to maximize our purchases and in many ways it has been a cornerstone of our country’s financial success. In other words the more you can borrow, the more you can buy. When you get more stuff, businesses make profit, and our economy goes up and up—and sometimes your purchases make money and then you can turn around and leverage the money again. Sometimes.
Now don’t get me wrong, I don’t think leverage is in and of itself bad. It has been very useful in my own life and the lives of nearly everyone I know. What goes wrong, in my humble opinion, is when we encourage each other to leverage to the maximum. Buying things we don’t need and that we might never be able to comfortably afford just because we have the credit to do so is a problem waiting to happen. (Remember…Just because you can doesn’t mean you should.) Because obviously if that debt grows too large, we become trapped into a lifestyle that literally makes us a slave. And then, rather than admit the error, we silently encourage others to do the same as though the mass insanity of the experience is the only way to go.
It’s also good to recognize that when a person is younger they usually have the time to learn from and hopefully recover from any “leveraged mistakes” they might make. However, as we get older and time more precious, our leverages carry more consequences. For example, if you buy a home using leverage when you’re younger and the value drops, time will most likely catch up with you and eventually you will be fine. But if you are of an older age and make a financial mistake, you are very likely stuck with a debt you will never able to repay in your lifetime or the loss of precious savings if your stocks tank. When it comes to leverage, age matters.
Another thing that has become painfully obviously in the last couple of months is that things can—and likely do—change very quickly. Back in January 2020 (remember then?) unemployment was at an all-time low, the stock market was rocking and rolling, and many businesses in the U.S. were doing well. In less than 60 days everything changed. Now maybe we could have anticipated that this change was coming, or maybe not. The point is that change is always lurking around the corner and the best investment strategy is probably to prepare for that any way we can going forward. Yes, aging and change are a given as time goes by.
This economic downturn also points out what investment advisors have been warning about for decades. Experts recommend that people put anywhere from three to six months’ worth of savings aside so that they can weather any financial disaster. However, according to Bankrate.com only ½ of all U.S. citizens even have enough savings to cover a $1,000 emergency. But can anyone blame them? When huge corporations can’t manage to make it through a couple of months without massive government bailouts, why should the general public take a more conservative approach? After all, if the primary mission of a corporation or business is to make a profit at almost any cost, then why should the people be expected to do differently?
So while I’m no economist or an investment advisor, it seems fairly clear to me that it would be SMART to start paying attention to what and where we have leveraged our life and what we have “invested in” up until now. It may not be feasible to pay off your debt at this time, but it should surely be a goal to shoot for if possible. Managing your money so that you keep it well within your capabilities (an old-fashioned concept called “living within your means”) is also critical. Plus, refusing to keep maximizing leverage just because everyone else seems to be doing it will pay off in terms of peace of mind. I believe it is far better to sleep at night instead of worrying about how you will stay ahead of the bill collectors, or what you will do if the markets crashes, if or when change happens.
But beyond the advice of living within your means, there is another way of thinking about investments that I think largely goes ignored. If this pandemic has taught us anything, I hope that most of us realize that it is our health, our sanity and our relationships that deserve more attention than we’ve given them in the past. It’s true that we can’t ignore our finances, but we also can’t ignore the aspects of our lives that make it worth living in the first place. For example, when we finally make it through the worst of this experience, what if we started investing in?
- Better health for ourselves and everyone in the world. No matter where we are starting from, there is likely a next step forward to enhance our health in positive ways. Maybe ensuring that we all have access to good and affordable health care would be an investment worth making.
- The ongoing education of ourselves and those we love. No matter what our age, we need to keep learning and growing and we need to support those younger than us in the same endeavor. After all, if we want a better world, let’s make sure that those younger have access to quality education and information.
- The health of our relationships. It is so easy to take our relationships for granted and put them autopilot. But don’t they deserve more? Let’s not regret what we didn’t do—let’s plan to maximize experiences with those we care about.
- Our happiness and peace of mind also deserves our investment. If we go around complaining and blaming others for the contentment missing in our lives it is likely because we have forgotten to invest in our own. Let’s not stop until we find purpose and meaning and a way to give back.
- The overall health of the world and the planet could use our investment as well. Clearly, this pandemic has shown us how we are all tied together in big and small ways. While it is tempting to ignore other cultures and even things like climate change, ultimately those issues can and will be affecting our lives in bigger or smaller ways. Far better to “invest” in helping to create a better world for us all now, rather than be surprised if or when something happens.
As usual, I don’t have any final answers to these ideas but it did get me thinking about how I want to invest in the future. I also found it helpful to remember that although leverage can be a helpful tool, it can also be a trap if a person isn’t careful. As I so often say, the SMART approach is to stay conscious and aware that all of our choices have consequences and that a good investment strategy is to invest, first and foremost, in what really matters.
Hi Kathy,
Interesting to read your comments about rigging the system. I remember watching news when Trump came to power, and how he refused to put his money into a blind trust (as is normal). This means that he can adjust his investments based on what he knows that others don’t, but what’s more concerning is that he’s in a position where he might be tempted to manipulate markets which could represent a conflict of interest.
Is it popular belief in the USA that people in power are rigging the system? It’s difficult to know what true perceptions are in the USA when I live so far away and our media isn’t that good.
I used to think I was smart and knew how to invest. Now I realize I have no idea what’s going on in this new world of ours, so I just keep some savings in a low-cost stock index fund, make sure my insurance, including health insurance and long-term care insurance, is current and up-to-date (and now I’m not so sure about long-term care insurance).
Hi Tom! It’s true. The financial world is pretty up in the air right now. But remember, not all investment is about money. Your humor (which you have an abundance) along with things like your mental, emotional and spiritual wellbeing are all things we can be investing in no matter what is happening in the economy. Thanks for sharing part of your strategy! `Kathy
Growing up in Europe, it was eye-opening to learn about the debt and buying things on credit once I first came to the US. I’ve been taught to not spend money I don’t have (except when it comes to borrowing money for buying a house – which I’ve never done). To me it’s common sense to first make money and then spend it. Imagine the dependency and stress and pressure otherwise… Funny you mention “living within your means” as I was just thinking that would make an interesting blog post on my website one of these weeks. 🙂
Hi Liesbet! I think that many people growing up in other countries have the advantage of not getting into the “credit” drain that has affected so many of us in the U.S. And yes, I agree that it is common sense but isn’t it amazing how easily some people forget that. And yes, do write a blog post about “living within your means.” I don’t think most of us can hear it enough. ~Kathy
Hi Kathy, Many great points in this article. Yes, on financial philosophies and hopefully common sense. And yes, especially when investing in emotional and physical health. You bring up a great point on how we may not have all the answers although we should be conscious and aware of all of our choices and the potential results of our actions. Thank you for a thought-provoking post. I look forward to “seeing” you again, soon.
Hi Erica! I agree that most of this is common sense but I think we all know people who could benefit from the reminder! I read so much online that NEVER mentions how important it is for us to invest in our mental, emotional and spiritual wellbeing as much or more than our financial investments that I thought it could serve in that way. And yes to encouraging thinking!!! ~Kathy
YES to investing in health, education, relationships, peace of mind, and our planet.
And doing so SMARTLY!
Thank you for another wise and thought-provoking post!
Hey Donna! I don’t know about “SMARTLY” 🙂 but I do write about things I want to be reminded of for sure! I hope you and Richard are holding up okay cuz I know you have a lot of “stuff” going on in your life! Virtual hugs from California! ~Kathy
It was great to read about something other than “that”.
Yes, lets be sure to invest in our health and in our relationships.
Hi Gary! I didn’t know about everyone else but I was getting a little weary of all the “that” news myself and obviously starting to think about the future. And I can ALWAYS use info that reminds me to focus on my health and relationships! Thanks for checking in here! ~Kathy
Admiral aspirations from a bad situation we are in. Well said Kathy!
Hi Haralee! Obviously some days are better than others but I’ll bet that goes for everyone huh? Thinking of you Haralee and sending you best wishes in all ways! ~Kathy
Great thoughts! As you suggest, everyone will figure out how to invest their time and money in different ways, depending on what drives them and makes them happy. It’s astonishing how hard it is to remember to THINK about it rather than just react! We’re taking the money we’re saving from driving and donating it to various local charities — that makes me feel good.
Hi Nancy! Good for you for realizing that if you are in the position to help others right now that sharing some of that “good” with others is a very important thing to do. And like you said, it not only helps others–it feels good to you too. I also agree that we have to stay mindful about what’s important to us and act accordingly or we just get stuck in routines that may or may not serve us. Sounds like you are staying healthy AND sane. Keep it up! ~Kathy
Kathy – I have been reading your blogs for a couple of years, and have only commented once. This one really struck a chord, though. My husband and I are both retired, and while we lived paycheck to paycheck during our early years together, starting a business, we are comfortable now. But I remember those days and I feel great empathy for our youth. Especially health care. Even with access to healthcare, the deductibles are often astronomical. What can we do? Not sure. We do need universal healthcare, so voting is one option. Another option – work in a job that has great healthcare benefits, not just while working but also in retirement. Perhaps not even a job you really enjoy, but if necessary, work 10 years to get those benefits.
Again, just this morning, I was wondering about my purpose. Used to be very social – music and art, dinner with friends, gym, book group, teaching Sunday school, traveling to see my son and then traveling with him all over the west coast. None of this is possible now, except through zoom, and it is very disheartening. We are giving back now, mostly to family members who need it. I am trying to figure out a way to get a Sunday school group going on zoom, but not sure that will work with middle schoolers.
It is exciting to see the pollution disappear from all over the world. One small way I, and most others, can contribute is by regulating our food consumption. Unusually, I have not wasted one scrap of food in 9 weeks, and have saved 1/3 of our grocery bill! Meal planning with a trip to the store only every couple weeks has done it. Plant-based meals once or twice a week. Healthier for us and less pollution for the planet going forward.
Clothing – do we really need all those options? No. The new spring wardrobe I’d usually be buying, I’ve not. Just a couple new tee or rugby shirts that will be useful in walking in the woods and working around the yard. Not good for the retail stores, but good for the planet. And who cares that most of my clothing is older? I will, of course, need new hiking boots and sneakers, so there is my retail contribution. Only what I need from now on.
And that may be what I have taken away from this whole crisis, get and use only what we need as we transition back to ‘normal’.
A resounding Thank You for all your posts. They make me think.
Hi Annie! Thank you so much for letting me know that this post got you thinking…you KNOW that’s a big intention of mine! And thank you for writing a comment once in a while to let me know you are “out there in the blogsphere!” I have lots of people on my mailing list but never know for sure whether they are reading or just tossing. I realize not all of my topics are interesting to EVERYONE but I’m hoping I touch people now and then. And it sounds like you and your husband have made some VERY important changes in your life (Rightsized for sure!) and how can that not be helpful to you. Your takeaway thoughts for going forward are sure to be a help to your and everyone you touch. Thanks again for checking in! ~Kathy
Thanks, Kathy for another thought-provoking post. I’ve linked several loved ones to your sound ‘strategy’ and Tweeted.
Hi Mary! Thank YOU for letting me know you appreciated the focus on my investment strategy. While we all need to focus on making money to stay ahead, I think making a good life is far more important! ~Kathy