Thursday, January 14, 2010

The Psyche of Post-Recessionary Wealth

Editor's note: Dr. Jason White is writing a new column for the Maryville Daily Forum in Maryville, Missouri. Dr. White is a professor of economics at Northwest Missouri State University, and we're proud to also have him as our director of investments. Congratulations on your new gig, Jason!

By Dr. Jason White
Director of Investments
Family Investment Center

I am so pleased to be back in the pages of the Maryville Daily Forum. I hope to make this column a weekly resource for you and your family as you build your wealth through proven best practices and by preventing avoidable mistakes.

The fallout from the 2007 to present economic and financial Great Recession has scared many from their financial plans and savings goals. Risk, even diversifiable risk, has driven many from the stock market and other reliable long-term investments in a flight to perceived extreme principal security.

Gold, treasuries, CD and bank savings accounts have enjoyed huge asset inflow during this deep economic downturn, and I suppose that is not altogether surprising, giving the herd mentality of many investors. Too often we zig when we should zag; buy when we should sell; or be fearful when it is appropriate to be greedy.

The fact of the matter is that the big money is made in times just like this, not when the stock market and economy are frothy and booming.

The year just ended had many saying “good riddance," and I certainly understand that sentiment. Unemployment is as bad as 1982. Government has become an increasingly intrusive force into American business and entrepreneurship, rather than supportive partner it should be. International tensions are high. Healthcare… well, you get the idea.

Despite all of this craziness, the S&P 500 gained 26 percent in 2009. The reported gains from the panic low point in February 2009 are more than 60 percent for the year, as the media breathlessly reports far too often.

CNBC and Fox Business are great sources of information, entertainment, real-time data and interviews from the titans of industry, finance, economics and politics. I love them both, but I also find they can suck hours out of my week and leave me more uncertain about the immediate future than before I tuned in. Capturing viewers 24/7 requires a certain degree of audience manipulation and engagement. Producers understand the seductive lure of fear and greed to the human mind. We are treated to tips on making fast money, followed by warnings that capitalism is an endangered species. It’s dizzying.

As I advise families about long-term investment management, I find some are paralyzed by understandable but irrational fear. The market was too dangerous a year ago, so they wait for improving conditions. The market is overvalued now, so they wait for a pullback.

This is not the formula for successful family wealth building.

I am the most reliable long-run bull you can find in the world finance and economics, because the market always wins in the long run. This time is never different. The market is not “too high” right now. The Dow is still 4,000 points below its previous cyclical peak. The market was not too low last February. It was a great time to invest.

Successful builders of family wealth are comforted and rewarded by this investment fact: the market is always right in the long-run and will always reward those who stay the course.

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