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The investor class

Pollster John Zogby has an interesting piece in Forbes about people who consider themselves to be "investors." Here are results from an online poll of 24,000 people:

59% of self-identified investors have household incomes below $100,000 and 44% don't have a college degree. Blue-collar workers make up 15% of the Investor Class, a number that becomes more impressive when you consider that the total percentage of blue collars in this online sample is only 21%. There is no significant difference on matters such as religion, whether they live in urban, suburban or rural areas, union membership, or even how often they shop at Wal-Mart. As for race, African-Americans and Hispanics combined make up 15% of the Investor Class, which isn't so far off their representation in the nation.... [T]he Investor Class is more likely than non-investors to:

• Say they are political conservatives (41% to 26%)
• Have voted for John McCain (57% to 39%)
• Believe they and their families can achieve the American dream (81% to 58%)
• Believe that affirmative action programs reward some at the expense of others (69% to 56%)

On the whole, Zogby found the "investor class" to be "more politically conservative and optimistic" than the general population. He concludes:

[W]hile Democrats may certainly be in the ascendancy after the 2008 election, there may still be an appeal down the road for the "ownership society." There is a significant pocket of Americans who are inclined toward conservative values based on how they see their world and from where they see their world: Namely, their investment portfolios, regardless of how big or small the investments may be.

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This post is used with permission of Sound Mind Investing, America's best-selling Christian financial newsletter. SMI, published by investment advisor Austin Pryor, has been Crown's primary investing resource for nearly 20 years. More than 14,000 families rely monthly on SMI's step-by-step investment advice. Visit Sound Mind Investing to learn more.

Past financial crises

According to this pair of economics professors from Maryland and Harvard, the U.S. crisis is following a very similar path to past serious financial crises in developed countries. Naturally, this doesn't mean our experience will be exactly like these others. But the information in "What Other Financial Crises Tell Us" (published in the Wall Street Journal) does provide a frame of reference for what might be in store.

Here are a few excerpts, though it's worth reading the whole thing.

Let's start with the good news. Financial crises, even very deep ones, do not last forever. Really. In fact, negative growth episodes typically subside in just under two years. If one accepts the NBER's [National Bureau of Economic Research] judgment that the recession began in December 2007, then the U.S. economy should stop contracting toward the end of 2009....

In the typical severe financial crisis, the real (inflation-adjusted) price of housing tends to decline 36%, with the duration of peak to trough lasting five to six years. Given that U.S. housing prices peaked at the end of 2005, this means that the bottom won't come before the end of 2010, with real housing prices falling perhaps another 8%-10% from current levels....

Equity prices tend to bottom out somewhat more quickly, taking only three and a half years from peak to trough — dropping an average of 55% in real terms, a mark the S&P has already touched. However, given that most stock indices peaked only around mid-2007, equity prices could still take a couple more years for a sustained rebound, at least by historical benchmarks....

Needless to say, a near doubling of the U.S. national debt suggests that the endgame to this crisis is going to eventually bring much higher interest rates and a collapse in today's bond-market bubble. The legacy of high government debt is yet another reason why the current crisis could mean stunted U.S. growth for at least five to seven more years.

The bottom line of their analysis seems to be this: this could last a while. The good news, if there is any, is that perhaps stock prices won't decline a whole lot more than we've seen, and the economic conditions may not get tremendously worse. The bad news is that conditions could stay roughly the way they are for at least a few more years.

As usual, your outlook on this projection depends quite a bit on your personal situation. To someone in his or her 30s or 40s with a pretty stable job, this isn't awful news. The prospect of funneling a couple years' worth of contributions into a stock market at these levels might actually hold some appeal. But obviously for many, this is anything but a cheery forecast.

Again, it's worth reiterating, just because this is the "average path" doesn't mean it will necessarily be the course of this particular crisis.

Regardless of your outlook on this scenario, prudence dictates a continued emphasis on reducing debt and increasing emergency savings. People who have those two elements firmly under control are going to be much better positioned to withstand the rest of this economic downturn than those who don't.

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This post is used with permission of Sound Mind Investing, America's best-selling Christian financial newsletter. SMI, published by investment advisor Austin Pryor, has been Crown's primary investing resource for nearly 20 years. More than 14,000 families rely monthly on SMI's step-by-step investment advice. Visit Sound Mind Investing to learn more.

Stock Plunge, Donation Reductions Squeeze Seminaries

From the February issue of Christianity Today:

With the stock market dropping... schools that rely on endowment income [are] vulnerable. Dennis Hollinger, president of Gordon-Conwell Theological Seminary, said the school lost $600,000 in endowment income in 2008. Some restricted endowment gifts have gone "under water," meaning they are now worth less than the original gift, and the seminary cannot spend from the principal....

"[The economic effect] is not in a drastic mode at this point," said Hollinger, "but it is clearly forcing us to take a hard look at the way we operate and the way we do business."

Southern Baptist Theological Seminary (SBTS) president Albert Mohler said the school would likely need to implement layoffs and tuition increases to manage a $3 million budget shortfall after losing over $1 million in endowment revenue and facing reduced giving from alumni and denominations.

Meanwhile, the Ft. Worth (Tex.) Star-Telegram reports that "Southwestern Baptist Theological Seminary is cutting some programs and has closed its preschool child-care center."

"This is a most regrettable circumstance and not of our own making," Southwestern President Paige Patterson said in a news release. "But as stewards before God, we are all responsible for handling matters with as much compassion and justice as we possibly can. The goal in the end is to have a strong seminary when the present financial crisis eases."...

Patterson said he anticipates other cuts so the seminary can maintain debt-free operations and to be certain that revenues cover expenditures.

Pray for seminary, church, and ministry leaders as they seek to pursue a path of faithful and responsible stewardship in difficult times.

"If any of you lacks wisdom, he should ask God, who gives generously to all without finding fault, and it will be given to him" (James 1:5).

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This post is used with permission of Sound Mind Investing, America's best-selling Christian financial newsletter. SMI, published by investment advisor Austin Pryor, has been Crown's primary investing resource for nearly 20 years. More than 14,000 families rely monthly on SMI's step-by-step investment advice. Visit Sound Mind Investing to learn more.

20-Something Retirement Tips

Are you a 20-something?  With many experts saying that Social Security is “dead program walking,” you really need start saving for retirement—even if it’s 40 years away.

Here are some great tips from SmartMoney:

1. Start today.  Even if you can save only a little each month, starting early is huge.  Saving a little now is more important than saving a lot later.  Try to put aside 10-percent of your income in a company retirement plan—it’ll pay off big time down the road.  Check out this great retirement calculator. 


2. Take the free money.  Because of the tough economy, many employers are cutting back on matching contributions to employee retirement accounts.  If your employer is still matching a percentage of your retirement savings—that’s free money.  Save enough to be eligible for the maximum contribution.
3. Open a Roth IRA.  If you’re blessed enough to have extra cash after maxing out your employer contributions, or if your employer doesn’t offer a retirement plan, a Roth is terrific.  Unlike an employer plan, you can’t use pre-tax dollars to fund your Roth, and you can only put in $5000 each year ($6,000 if you’re over 50.)  However, after age 59 ½, that money is yours tax free.

Have you started saving for retirement yet?  Do you think Social Security will be around when you retire?  We'd love to hear your thoughts.

Steps to Wise Career Decisions

Nearly 2 million have lost their jobs since the beginning of the recession and some experts believe another 2 million could be unemployed before the end of 2009.

Have you lost your job?  Or maybe thinking about a new career?    Well, being between jobs is scary, but it could also be the best time to figure out how God wants to use you.  Here are 3 steps to help.

1. Make sure you ask God what He wants you to do; ask Him to put you where He wants you to be. Open your heart to God, actively pray, and ask Him to counsel you as you read His word.  Humble yourself and be open to God; He won’t direct you until you do. When you pray that God’s will be done—not yours—you’re totally God’s and ready to embark on an exciting life of faith.
   
2. Abandon the cultural lie that moving up career-wise is always best. Joseph’s path to becoming overseer of Egypt took him through prison.  More isn’t always better, nor is it always God’s will.
   
3. Act on the God-given desires of your heart.  When you hear Him calling you to do something, obey. He wants us to step out in faith.

Psalm 55:22 says, “Cast your cares on the Lord and he will sustain you; he will never let the righteous fall.”

If you need help you discovering the skills and passions God’s given you, check out Career Direct®.

What's In Your Wallet?

Are you still carrying around a walletful of credit cards, or are you using more cash these days?  According to MarketWatch, a growing number of people are using cash to control spending as the recession deepens.

The Federal Reserve reports that consumer credit fell at an annual rate of 3.75% in November.  Meanwhile, Americans increased their savings rate to 2.8% of disposal income.  A year ago it was around 1%.

 

Studies have shown that we spend less when using cash.  So what's in your wallet?  Have you changed your purchasing habits to control your spending?  We'd love to know. 

Spending Down, Saving Up

Dow Jones Newswire is reporting today that consumer spending was down again in November for the fifth straight month as personal income also fell.  Spending was down .6% in November from the previous month, while personal income fell .2% for the month.

The November drop in spending is remarkable since the Christmas shopping season traditionally kicks off on Black Friday, the day after Thanksgiving.  Even with that boost, November spending could not match that of October.  That's the bad news.

The good news is that the rate of saving rose in November to 2.8% of disposable income, up from 2.4% in October.  Experts say Americans are saving more to due to the recession and the increased possibility of job loss.

Have you cut back on spending?  Increased your savings?  We'd love to see your comments below!

Recession-Resistant Businesses?

Surveys show that almost 3 out of 4 Americans would like to start a business and "be their own boss?"  We told you recently that a recession is actually a good time to start certain businesses.

So what types of businesses are recession resistant?  According to LegalZoom.com, these are a few of the best businesses to start when the economy is sluggish:

• Debt collection (God may want to use you in this field, it's a needed service, and we need people who will do it legally and ethically)
• Security (inspection, installing equipment, background checks)
• Computer repair (companies are holding on to their computers longer)

Do you have your own ideas about what type of business could succeed in an economic downturn?  Please let us know with your comments!

Cost-Effective Colleges

Would you send your kid to Harvard, Yale, or Princeton if you could afford it?  A lot of parents do send their children to pricey Ivy League schools, thinking that greater earnings down the road will more than make up for the cost of tuition.

That may not be the case, however.  A recent survey by SmartMoney looked at median salaries 15 years after graduation to rate the payback potential of the nation’s colleges.  No Ivy League school made even the Top 5:

1. University of Georgia (338%)
2. Texas A & M. (315%)
3. University of Texas, Austin (306%)
4. Georgia Tech 263%)
5. University of Washington (225%)

Oh, by the way, Harvard came in 11^th with a tuition return of 124%.

A college education is one of the most expensive things a family will ever purchase—so it’s good to know where you can get your money’s worth.

A (not so) Shocking Development

We're shocked, shocked to find that some individuals may be scamming the government's mortgage bailout program.  This USA Today article tells the tale.

While government assistance may help some folks stay in their houses temporarily through our current tough economic times, it's unclear how many more will abuse extended grace periods and other loan modifications.

We don't want to discourage you from participating if you really need help, but it should only be a last resort.  Experts warn that homeowners who slow payments just to qualify for assistance could have difficulty refinancing later.  Here's a great article if you're having trouble making your mortgage payment.

Does it surprise you that folks might be tempted to "game" the system?  Feel free to comment below.