Politics and personal finances

[Brian63]

A little history:



Currently I am in my young 40s. In my mid 20s I unfortunately developed epilepsy (chronic seizures). One common side effect of seizures is that they can erase large chunks of your long-term memory. That is the case with me. I remember very little of my childhood and almost nothing of my adulthood. So much of my life is a blank screen. That seems abnormal to others, but it is the only way I can recall living in this world, so it seems normal to me. What at least “seems” abnormal to me is how well others remember so much of their life.



During my adulthood my bad health problems also resulted in bad financial problems. Now I am on a path to recovery in both areas. However, I am ignorant on matters of personal finance. Also, here in the U.S. the state of our society has me really concerned. When I have viewed graphs from personal finance experts illustrating how investments grow over time (“invest early and often”), it is appealing to join in myself. Those charts and graphs represented the state of our economy over the last few decades. Now though, my confidence in American democracy even is very shaken and with it I also feel much less confident that the American economy would survive or thrive alongside it. We are living in unprecedented times, so looking at market history does not inspire confidence that I could similarly be financially better if I invested.



How much and in what ways does the state of politics affect your personal finance choices? Does the fact that in America we are facing grave threats to our democracy and basic political institutions make you more cautious about how you personally invest in the economy? Does your financial adviser speak with you about it or not?

 

[Jimmy Higgins]

Simply ignore charts, the humps and bumps and pits and abysses average out to an annual rate of growth eventually over a long period of time. The simple equation to consider, there is a more complicated one for annual contributions, is x*(1+y)^t

X is the initial investment, y is the annual interest rate (not as a percentage!, and t is the number of years. The power for t is what makes invest early matter, because once you get over the 30 or so year hump, the interest is making interest on interest.

If you assume a small 5%, the money initially invested is worth 4+ times what it was in 30 yrs. At 8%, it is 10+ times in 30 yrs. So invest early means in the 20s and 30s, when one doesn't have quite as much money to invest, but if getting that on average 8% rate of return a year, it more that makes up for it. I'm about the same age boat and I've done alright, despite how crappy the market has been with the pitfalls and all.

 

[Brian63]

Yeah, they would have worked fine in the past. My OP though was about how we are living in unprecedented times. I hold a very bleak picture of what American government, American democracy, and state of the global environment is going to be over the next years and especially decades. So I am less inclined to invest in it, and have less confidence that it would prosper. Also, given my epilepsy I do not expect to live for another 40 years or so, or at least there is a good chance I will not. I would rather not make my financial investments as if I were going to be around that long or the global/US economy is going to perform well for the next several decades.

 

[Jimmy Higgins]

Yeah, they would have worked fine in the past. My OP though was about how we are living in unprecedented times. I hold a very bleak picture of what American government, American democracy, and state of the global environment is going to be over the next years and especially decades. So I am less inclined to invest in it, and have less confidence that it would prosper. Also, given my epilepsy I do not expect to live for another 40 years or so, or at least there is a good chance I will not. I would rather not make my financial investments as if I were going to be around that long or the global/US economy is going to perform well for the next several decades.

All time is unprecedented. The world didn't cease to exist during WWII and that was about as bad as it could get. And yes, the US is trending to the downward, it doesn't mean investment is a bad idea. You should talk to a fiduciary about your concerns and short/intermediate needs and plans for saving.

 

[Brian63]

"All time is unprecedented."

That is not a good response to this case. Financial advisers use past time as predictors of future events. The abstract phrase of "All time is unprecedented" may sound wise or cute in a philosophy book or a novel, but I am referring to our real-world responses to events around us. Yes, WWII was also unprecedented. We also came close then to the Axis forces winning the war. Just because they did not then does not mean we should assume that all future close-encounters with chaos will come out okay in the end. Sometimes in history empires do indeed perish. Civilizations crumble. Even if people thought they were safe.

 

[Jimmy Higgins]

"All time is unprecedented."

That is not a good response to this case. Financial advisers use past time as predictors of future events. The abstract phrase of "All time is unprecedented" may sound wise or cute in a philosophy book or a novel, but I am referring to our real-world responses to events around us. Yes, WWII was also unprecedented. We also came close then to the Axis forces winning the war. Just because they did not then does not mean we should assume that all future close-encounters with chaos will come out okay in the end. Sometimes in history empires do indeed perish. Civilizations crumble. Even if people thought they were safe.

Are you actually looking for advice? Because a Fiduciary is your best option here to help you intelligently address these concerns. They aren't wizards who can tell the future, but they are going to help provide a better picture for investing at this point for your situation and your concerns.

 

[Brian63]

Yes, advice. In addition to what my financial adviser may say, I wanted to hear from the experiences of others here and what their own financial advisers have said. The more info, the better. I just do not see the point of a generic platitude like "All time is unprecedented". How does saying or hearing that impact any real-world decision you make regarding your own finances?

 

[Elixir]

What Jimmy said. Get a fiduciary. If you don't like them, don't understand what they're telling you or get any kind of bad feeling, don't hesitate - get another one. Repeat until you find someone you can trust, understand and enjoy interacting with.
I've had the same kind of unease, and recently have had to fall back on sometimes conflicting advice from my tax accountant and financial advisor. Right now, with inflation the way it is, I'm glad to be invested in real estate at least 50%. Also glad I set aside a couple years worth of cash (that is losing value every day) a year or so ago so I don't have to worry too much about short term market volatility, or being forced to sell off property under duress. But all situations are unique... get with a fiduciary!

 

[Brian63]

Yes I do plan on getting a fiduciary. I was just asking also how others have factored in the state of the U.S. political systems and global environment. Do you not take that into account at all? Do you factor that in? What does your fiduciary do?

I am looking for general ideas on what people do for themselves, which might spark some ideas for others as well. Those would be paired with a fiduciary going over with us our own specific situations.

What I am hoping for in this thread though is more concrete and useful statements, not so much platitudes like "All time is unprecedented". How exactly does hearing/seeing that change your own choices on how to invest for the future?

 

[rousseau]

The problem with factoring in something like state politics is that it's unknowns like this that actually represent the risk we face as investors. If we could accurately predict the future of the U.S. market, we could confidently invest in it, but since we can't there is real risk in putting our money into it.

FWIW, I've also considered potential systemic risk in the U.S., but the reason I'm not investing in the U.S. market right now is because it's terribly over-valued. The investing company I'm with has divested itself of any U.S. stock among it's balanced private portfolio, which I think speaks to the over-valuation.

Common wisdom is that compound-interest and long-term trends are the way to go, but fewer look at sequence of returns. It's true that you'll accumulate money via interest regardless, but if you see a long sequence of high returns when you have a large portfolio, you'll make far more money than if you see that sequence of returns with a small portfolio. IOW, right now the U.S. market isn't going to climb into the sky, and any money put into it now is going to drop in value and likely not recover that value for decades. Where had you invested significant money after the last crash it would probably be wise to sell right about now and re-invest at the bottom of the market.

I'd highly recommend the book Adaptive Asset Allocation and also looking for the Finance and Personal Investing thread that I started a few years ago. Give them both a close read.

 

[Brian63]

Thanks.

Given how new I am to personal finances and investing, and how I have had Roth IRA's recommended to me by professionals, I am likely to start placing some money there in the fairly near future. Contributions (not interest earned) can be withdrawn at any time without penalty.

 

[Jimmy Higgins]

Thanks.

Given how new I am to personal finances and investing, and how I have had Roth IRA's recommended to me by professionals, I am likely to start placing some money there in the fairly near future. Contributions (not interest earned) can be withdrawn at any time without penalty.

I would question the benefit of a Roth IRA. Your tax situation will likely be near low end when retired, unless you are fabulously wealthy. So paying the taxes now, verses later seems less beneficial.

 

[Loren Pechtel]

Thanks.

Given how new I am to personal finances and investing, and how I have had Roth IRA's recommended to me by professionals, I am likely to start placing some money there in the fairly near future. Contributions (not interest earned) can be withdrawn at any time without penalty.

I would question the benefit of a Roth IRA. Your tax situation will likely be near low end when retired, unless you are fabulously wealthy. So paying the taxes now, verses later seems less beneficial.

I figure the tax effects of a Roth are probably about a wash. However, there are two other things:

1) Since a Roth has after-tax dollars you are effectively allowed to put more in. Obviously this is only useful if you have more to save than the Roth limit.

2) Roth IRAs aren't subject to mandatory withdrawals. If you have enough other retirement assets this means you can get the tax shield for longer.