Human nature tends to skew toward a glass-half-empty world. The media, economists, people trying to sell books and other gurus have pointed out all the worst-case scenarios in vivid, elaborate detail. Unemployment, gas prices, higher taxes, geopolitical turmoil, the sustainability of entitlements…it can keep even the greatest of optimists awake at night.
In the past several postings I’ve made, I’ve talked in great length about us being within a secular bear market in respect to the stock market. With no doubt, we are in a difficult market environment. But there is hope. Despite the challenges, I tell my clients they should remain optimistic for two reasons:
1) Adaptation is a natural process where something becomes better suited to its environment. Markets and economies are subject to the same natural forces that organisms face and adapt to the problem. A perfect example of adapting is Sweden, which has been long considered one of the most socialist countries in the world. Most people would consider this a negative for the Swedish stock market, but they have had one of the better performing stock markets over the past 30 years. This is a classic example of how a market and economy has managed to adapt despite all the elements that are supposed to destroy it. Currently the financial markets of the world are adapting to a shift from a 30-plus year debt super-cycle to a massive deleveraging of the excesses that it created due to the manipulation of credit. Capitalism hasn’t failed; it’s continuing to mend and adapt from these excesses. Historically periods of deleveraging need time to filter out and it shouldn’t be any different this time around either.
2) Innovative forces don’t stop when economic conditions are lousy. People have a hard time conceptualizing this because the result of these forces seem to come out of the blue, but can have a huge positive benefit for the economy and underlying markets. Think about it. Back in the recession the early 90s, we had a real estate and banking crisis and the general sentiment was negative. Who back then had the foresight to envision the Internet and how it would change our lives forever? Who could have predicted what Steve Jobs and Apple computer did over the past decade – and all the jobs and economic growth created as a result? I don’t think innovation will stand still. I’ve been reading about how cracking the human genome is getting us closer and closer to finding a cure for many of life’s devastating diseases. I also suspect that we are going to find breakthroughs for alternative energy that will get us past our reliance on fossil fuels. Maybe as a pessimist you find these foolhardy, but few believed that we would be able to land on the moon or life expectancy would go from 47 in 1900 to close to 78 today.
There’s no doubt that we are in a difficult economic situation. But for those who have been spending too much time focusing on the bad things that can happen, I’m giving you two invisible forces that provide reasons for hope. In the end, pessimism is really a wasted approach. If all the doomsday occurs, then there is not much we can do about it. But for the positive, it can present a great opportunity to benefit by planning for it today if somehow things go right.
Jeff Bogue is an independent, fee-only financial planner with his firm, Bogue Asset Management LLC, serving individuals, families and small business owners nationwide since 1997 with offices in Wells and Portland, Maine. Jeff has been a Certified Financial Planning Practitioner since 1997 and has been quoted on personal financial matters in the Wall Street Journal, Consumer Reports, Consumer Reports Money Advisor, Kiplinger’s Personal Finance, Businessweek.com, Bankrate.com The Portland Press Herald, AARP Magazine, Registered Rep.com, Fidelity Stages Magazine, AOL Money & Finance, MSN/CNBC.com, Investment Advisor Magazine, Financial Planning Magazine and Financial Advisor Magazine. He is an active member of the National Association of Personal Financial Advisors, the Financial Planning Association and the Maine Estate Planning Council.