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.