by Jeff Reeves | June 8, 2011 12:26 am
I had the honor and privilege of attending the White House’s first ever Personal Finance Online Summit on Wednesday afternoon. The event gave me and two dozen other financial journalists access to top Obama Administration officials – including a brief Q&A with the president himself.
I solicited questions for Obama’s team from InvestorPlace.com readers like you, and was thrilled to see so many suggested questions. You can read a full list of your fellow investors’ concerns here, and I promise I will post more on the event when I have a chance to dig into my notes.
But I wanted to share some general thoughts in my first piece from this summit… namely, lessons you can use as an investor trying to protect your retirement funds.
Much of the talk at the White House summit, as can be expected, focused on the debt ceiling, the housing crisis and the job market. But during the give-and-take with top White House officials on these issues, there were some nuggets of wisdom that clearly applied to everyday investors and regular folks planning their retirement.
Here are those 4 tips, from the president’s own lips and from his chief economic advisor:
Doug Harbrecht of Kiplinger asked the president for his best personal finance tip for regular Americans. Obama’s simple response: “Don’t spend all your money.”
The president went on to explain that doesn’t mean you pinch pennies – citing how he and First Lady Michelle Obama plunked down $125,000 for their educations, including Harvard law school. But that was money well spent.
“Some folks say that investment is just another term for spending,” the president said. “There’s an important distinction.” He stressed that being strategic with your debt and living within your means could be best things you do to secure a strong financial future.
Those are comments that apply to Obama’s personal spending choices, to the federal government and certainly to those planning for retirement.
Austan Goolsbee, chairman of the Council of Economic Advisors (for the time being, anyway), was quick to deflect fears of the job market after disappointing numbers in May showed unemployment tick back up to 9.1%.
“You cannot make too much out of any one jobs report,” he told reporters at Wednesday’s summit at the White House, and stressed that the bigger picture was that 1 million jobs have been added across the last six months. “You don’t want to overreact to one month’s numbers that are different from what has been the trend.”
We can — and should — have a separate conversation about what how to truly determine the long-term trend of the job market and the economy. Data can be slippery, and numbers often can tell many different stories. But the idea of tuning out the “noise” is an important one that Americans should embrace.
In this difficult market, there are a host of conflicting data points on economic issues and specific investments – not just on jobs but on bank stocks, the housing market, gold prices, and a plethora of others.
Unless you’re a trader looking for a short-term pop, don’t worry about short-term gyrations. Most Americans should simply keep a clear focus on long-term trends and recognize whether they align with their retirement goals and investing strategies.
President Obama was asked whether he was frustrated by dichotomy of a focus on the deficit but a fear of cutting programs. “It doesn’t mean we’re not going to have some tough choices,” Obama admitted, but the president stressed it was important to get beyond this simplified view of spending vs. spending cuts. Real financial decisions are more complex than that.
“What I think is absolutely true is that the general public does not have all the information they need in respect to how the federal budget is constructed,” Obama said. “I don’t blame them. When I was not actively involved with the federal government, I had no idea what was taking place and what was in appropriations bills.”
But that simplified view isn’t going to make ends meet, or create a secure future.
Isn’t that the truth with any budget or financial decision? Most Americans feel overwhelmed when signing up for their first 401k – and many undoubtedly still feel that way for years, scratching their heads when considering the prospects of an IRA rollover or examining mutual fund expense ratios. There are lots of little details, but they could have big implications in the long run. It’s easy – and sometimes more comforting – to overlook the minutia of complex financial decisions.
Just as the budget tug-of-war is much more complicated than the simple choice of whether to spend or cut, achieving your retirement goals depends a true understanding of your investment options. Especially in this complicated market, you can’t settle for such black-and-white approaches to investing as stocks or bonds, low risk or high reward. Those approaches may be simple, but could end up costing you.
When Austan Goolsbee was asked about the administration’s sense of urgency to address the economic challenges of our times, the White House’s top economist assured those at the summit that the president indeed views the situation as serious. But “we do not have a sense of panic,” Goolsbee asserted.
That’s an important lesson. Many economic issues these days, including retirement planning, are serious business with serious consequences. From 40-somethings wondering if they’ll have to work another 40 years to current retirees worried about another crash destroying their nest egg, there are real fears at play. And they are not irrational fears, either.
But panic gets you nowhere. Keep a clear head, acknowledge the challenges you face and set realistic expectations. That’s not to say you bury your head in the sand – but investment decisions made on pure emotion and fear instead of logic and research are typically the wrong ones.
It’s one thing to be pessimistic about the economy or your investments based on the facts. It’s another thing entirely to be fatalistic.
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