8 Fiscal New Year’s Resolutions
Change is coming. Barack Obama is president-elect and the New Year is upon us. By the time this piece is published, the frenzy in world financial markets will hopefully have calmed somewhat, now thatthe government has decided to guarantee almost everything in sight, and we can once again focus on the things that bring style to our lives—a worthy if somewhat worrisome pursuit amid the gloom pervading economic forecasts. Markets in turmoil make people who have financial backgrounds feel a little like lottery winners (without the actual cash); we get calls from a lot of long-forgotten friends seeking advice from supposed experts like us. Reordering priorities is a natural reaction in times such as these, and right now is a good moment to reflect on the changes we can control as we enter a new phase. Here are a few of mine.
1. Start giving to our kids. The government is likely to begin taking a lot more from affluent folks. Our taxes could skyrocket with a big Democratic majority, and the estate tax is certainly back for good. Of all the unpleasant duties in life, estate planning has to be the most miserable, and one I have avoided like the plague—though I did buy a “second to die” policy about ten years ago. So I resolve to start planning and giving in the coming year. I will renew and maximize our insurance policy, as mortality rates have vastly improved. While this may have doomed the viability of Social Security, it makes insurance premiums significantly lower. I will sit down with one of those salespeople who seem to enthusiastically view my impending demise as a positive development from a tax, legal, and accounting standpoint. (They are the same estate planners who end up making many parents bitterly resent their unknowing and perfectly innocent children for wanting to inherit so much!)
2. Stop watching business-news networks. I retired from a life in trading to get away from the horrors of the marketplace, particularly the financial markets. If you ever want to pursue a soul-deadening career, try being a bond trader. The world has finally become definitively acquainted with the greed, deception, and total irresponsibility of Wall Street. Unfortunately the “synchronous deleveraging” of markets has been a high-velocity but slow-motion train wreck (think of two mile-long freight trains smashing into each other at 250 miles an hour) that is just too compelling not to watch.
3. Hit the reset button. The disaster has happened. My grandfather was a big believer in the shoebox—that’s where he kept his money. He lived through the Great Depression and didn’t trust banks. The recent meltdown required governments all over the globe to rescue their over-leveraged and interdependent financial institutions. My years of investing as if the world were about to blow up have proved worthwhile at last. Owning almost exclusively municipal bonds escrowed to maturity or prefunded with U.S. Treasury bonds insulates us from both rising taxes and credit risk while being prudent about earning a return. When investing for your retirement, the conventional wisdom should guide you to be conventional: Stick to what is safe and buy smart companies’ stock and bonds backed by only the best credits, like the U.S. government. Take risks in your job and career—places where work, creativity, and innovation can tilt the odds in your favor—not in the market casino with money you cannot afford to lose. Every other product manufactured by Wall Street has generally turned out to be a bust. Just ignore them. And never, ever use borrowed money to invest in the markets.
4. Don’t look at the daily account statements. Once you are comfortable with your investment strategy, studying the online statement every day serves no purpose. I will glance at it once a month when it comes in the mail and review it every quarter. As long as the credit quality of bond investments is good, their daily valuation is meaningless. I bought them to produce income, and that doesn’t change. They will all eventually mature or be called and give us our money back. If you invest in solid companies for their long-term prospects, checking the stock prices too often is counterproductive. Staying informed about their performance and prospects is not.
5. Pay attention to bills. I’ve begun to notice that service providers are padding their bills. My lawn-mowing service charges me for removing clippings and branches but just piles them in a corner of the property. All my bills have new fuel surcharges; with gas prices down from recent highs, perhaps it’s time for those to come off? My wife has always told me I’m too nice a guy, and I’ve decided she is right. I don’t overbill my clients, and neither does she. It’s time to read the invoices and get explanations. Honesty and fairness isn’t a lot to ask, particularly in tough times. Too many people need the work.
6. Remember, what’s important is quality not quantity. Possibly excepting scoring goals, points, or runs, this applies to almost everything, including spouses. One look in the closets tells me that we have plenty of extra stuff we no longer need or use. Keep the highest quality, shed the rest to a worthy cause—charities are becoming desperate for help of any kind. Slowly replenish, but only with the absolute best you can manage, and make every acquisition count. The age of excess has passed. Most assets are trading at significant discounts, and the time to buy is when nobody else wants to.
7. Buy strategically. This has been very hard to do, particularly when it comes to cars. The slowdown in China has proved that the United States is still the world’s economic driver. Right now we need to keep our money flowing at home, or to countries that work with us, such as Japan, the UK, Australia, and Poland. It may not be patriotic to pay more taxes, but it is patriotic to spend with a friend.
8. Don’t take the cheap way out. Just because oil prices have dropped does not mean we no longer have an obligation to invest in alternative energy sources and encourage research and development by spending on worthwhile new products. We’ve all seen this movie before—oil gets cheap, so we abandon electric cars and ethanol, then a few years later we’re wondering why we still need to import all that expensive oil. A lot of very smart people believe alternative energy is where the great fortunes of the next generation will be built. I’m going to keep looking for products and investments that give the future generation of my family a chance at profiting from the financial and environmental impactof new technologies.
Not worrying about things we can’t control is an incredibly constructive resolution. We live in a world full of people who design and create the most remarkable experiences and products solely intended to bring us joy. It would be good to remember to reward their work, even in tumultuous times.
Mike Offit spent over two decades on Wall Street, during which he was head commercial mortgage trader at Goldman Sachs.