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Missed Fortune – Converting Fear & Frustration Into Confidence

Posted on | December 4, 2011

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Economic Uncertainty Fuels Anger and Frustration

A recent article by Catherine New in Business Finance talks about how Americans are growing increasingly distrustful of their financial institutions.

The article states:

“The latest figures from the quarterly Chicago Booth/Kellogg School Financial Trust Index showed that only 23% of those surveyed said they trust the country’s financial systems, down from 25% in June. The index measures trust in four areas: banks, the stock market, mutual funds and large corporations.

“The findings in this issue reflect what’s been reported in the news and demonstrate the fragility of trust many Americans still have in the institutions where they invest their money,” said Luigi Zingales, a finance professor at the University of Chicago Booth School of Business and co-author of the Index.

Trust in banks has experienced an even steeper decline, falling from 39% in June to 33% in October. Notably, people were much more inclined to trust local banks and credit unions: More than half of those surveyed said they still had faith in those institutions.

The survey also revealed that nearly 60% of respondents were either angry or very angry about the current economic situation — the highest level of anger measured since the earliest months of the financial crisis.”

These findings tend to confirm what an earlier CNN article that claimed nearly 90% of Americans regard our current economic conditions as poor or as the worst that they’ve ever been.

The solution for this growing sense of frustration and anger is found in empowerment.

This is especially true in light of the losses experienced during the so-called “lost decade” in which many people’s retirement nest eggs lost 30-40% or more of their value.   Few people have made it back to the point where they’ll break even.

The seriousness of this type of loss can be illustrated by imagining a $100,000 account losing 33% of its value and dropping to $66,000 in value.  To make up that amount of lost ground, you’d need to experience a 50% gain just in order to break even.

This is why so many Americans feel as though they’ve lost their future twice in just the last decade.

Congress has attempted to intervene, but so far their actions have essentially amounted to re-arranging the deck chairs on the sinking Titanic by adding additional spending.

As famed economist Milton Friedman once predicted in the 1970s, Congress constantly tries to spend its way out of a recession by increasing spending and passing legislation that doesn’t really have any effect.  In this latest crisis, Congress has spent an additional $3.6 trillion in 5 years and raised the national debt from $9 trillion to nearly $15 trillion.

Despite all this economic stimulus spending, unemployment has increased from 7.2% to 9.2%.

When the president suggests taxing corporations at ever-higher rates, this creates a strong disincentive for companies to grow and to hire new employees.  This uncertainty allows the economy to continue to stagnate.  A better approach would be the one followed by Wisconsin, which saw unemployment drop and business increase when the state lowered taxes and regulation.

What to Expect In the Coming Decade

With the difficulties of the Lost Decade still fresh in our minds, it’s essential that we consider the likely challenges of the coming decade.

High on the list of probable economic dangers is the prospect of higher taxes.   Couples who make over $200,000 per year and single filers who make over $100,00 could see their tax rates soar as high as 62.5%.

Even if Congress simply allows the Bush tax cuts enacted after 9/11 to expire, it would constitute the biggest tax increase in American history.  Few things will drain your nest egg quicker than the burden of being taxed upon withdrawing your money.

Taxes will be going up and your economic strategy should take this into consideration.

The second big danger we face in the next 10 years is inflation.   For the last two decades, inflation has averaged less than 3%, but in the days ahead, we’re likely to see inflation increase to 5% on the low end all the way up to 10% on the high end.

Your retirement planning must take this into consideration since even a modest 5% rate of inflation doubles the cost of living every 15 years.  When your dollars only purchase half as much 15 years from now as they do today, you’d better have a way of growing your money that outpaces inflation.

The third big danger is that of continued market uncertainty.  This, combined with economic uncertainty is what prevents employers from hiring new people and growing their businesses.

These three dangers combine to create a triple whammy that can wreak havoc on a person’s retirement nest egg.  Fortunately, there are proven Missed Fortune strategies that can be put to work to counter these dangers.

When your money can accumulate tax-free, when your rate of return is linked to those things that inflate during periods of inflation, and when you can benefit from market growth without risking your money during market downturns, the danger is dramatically reduced.

That’s when confidence replaces fear and frustration.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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