Is the American Dream Dead? I hope so!

If you had asked any random American in the spring of 2008 how they defined the “American Dream,” you would probably hear something to the effect of owning a house with a white picket fence, a few children running around the yard with a dog, and a BMW for him and a Honda Odyssey for her parked in the driveway. Fast forward a few years to the summer of 2011 and that same person may have a slightly different answer. It’s not that people don’t want the same types of things as they did prior to the recent downturn in the economy, it’s just that the thick veil of unreality that had clouded the eyes of millions of Americans for years suddenly became a little bit thinner.

For tens of thousands, the American Dream was achieved not by years of conservative spending habits and prudent investing, but rather a no-limits bared consumption lifestyle fueled by easy credit and people’s unwillingness to use the word “no” to stuff. “Should I buy a 3rd pair of shoes this month even though I have 5 like them at home?” Yes! “Should I buy a new Ford F-250 truck even though I’m not a contractor and I commute 35-minutes to downtown each day?” Sure! “Should I take out a HELOC to fund that $50,000 gourmet kitchen I’ve always dreamed of despite the fact that 99% of my cooking involves the microwave?” Of course I should! “Should I buy this home that’s 3 times larger than I need, with no money down and an adjustable mortgage due to adjust in 36 months?” Absolutely!

These examples may be comical to a degree but a quick step back a few years and that was reality for many people. “Let the good times roll” was the prevailing attitude for the masses and the result was the inevitable crash we all had the privilege to walk through. As our glass-house perceptions of reality came crashing down all around us, we adamantly cried “never again, I’ll do it differently next time.” Fiscal responsibility chatter started flooding in from the white houses of Main Street to the slightly larger White House on 1600 Pennsylvania Avenue. At last, everyone seemed to be reading the Tortoise and the Hare again and desiring to morph their lives to resemble that of the Tortoise.

Though the mess isn’t over for everyone yet, there are enough positive changes from the job and stock markets alike to see that a recovery is in progress. Life is returning to what many people would call normality;  in doing so, I wonder if all those people who begged to become the Tortoise, if given the 2nd chance, are doing so? I’m curious what lessons have really been learned during the down times? Have behaviors really changed? Do we really intend to be more watchful of our spending habits? Have our investment strategies sincerely become more conservative? Have the methods for obtaining the American Dream, at least the pre-recession versions, really died? I hope so for all of our sake. Otherwise, we’ll be right back in this position within a decade if not sooner.

Investing 101 (3/3)

The final step in the investment process is determining where to place your funds. Today there are more places to put your money than ever for it to be considered an investment. However, a true investment is one that makes a good return on investment (ROI) for the investor. Finding a financial vehicle that gives a good ROI and fits into a solid 20-30 plan requires a setting a few criteria during your search. Here’s my criteria for all of my personal investments:

1) Understand the investment. If I can’t explain what the investment does, or how it will profit me over time, there is no way I’m putting my hard-earned dollars in it. For mutual funds and common stock, I need to know the basics of how the company makes money, spends money, what they produce, why they are better than competitors, and why they are going to continue to grow. NEVER INVEST IN WHAT YOU DON’T UNDERSTAND! Even if you have a personal broker managing all your assets, they should still be able to “teach” you the above information.

2) Solid Track Record. For mutual funds I’m looking for good Growth, Growth & Income, and International Growth funds that have at least a 10-15 year track record averaging 12% or better. Open up any financial magazine and you’ll find plenty of fund managers boasting 30-50% 1-year returns, but 90% of those average less than 10% over a three-year period, or they haven’t been in existence beyond a year. I’m very skeptical of those types of funds. No track record equals no honest gauge to measure the fund by. Good investing requires a marathon approach, so be leery of the “sprinter funds”.

3) The investment is ethical. I choose not invest money into a place I would not do business or whose services I would not use. That means I don’t invest in tobacco companies, foreign companies who practice human right violations, or pharmaceuticals companies that create and distribute drugs like the “day after pill”. A distant investment in a tobacco comapny is the same as walking into a store and buying a pack of cigarettes off the shelf;  it’s all supporting the same company.

4) Invest in what you know. I’m a land developer and commercial property manager by trade. I know the commercial real estate market in my area well. I know cities that are worth investing in and others worth avoiding. I know what makes one property a valuable asset and another property a liability and risk. What am I trying to say? Many of the best investments are directly related to what you know the best. For me, this means keeping a portion of my investment portfolio in real estate. As long as the ROI meets my invest goal of a 10-12% annual average then the investment is worth considering.

Check out my other posts dedicated to IRA’s, Roth IRA’s, and 401K as additional investment tools that are important to have in your investment portfolio. I’ll just leave it at you should take advantage of any long-term investment that gives a tax sheltor to the interest gained during the investment period. Compound interest that grows tax free over 10, 20, or 30 years turns into huge dollars signs in your portfolio compared to those that are taxable along the way.

The bottom line for all investing is simple: start today and do it consistently! The power of investing isn’t how much you have to start with, but by consistently setting aside a portion of your income and giving it time to grow.