My Imminent Fiscal Cliff

The fiscal cliff is looming and I for one am licking my chops for the opportunity that will be presented once we are collectively pushed over the edge by the government’s inability to comprise. While Bonehead (Boehner) and The Great Socialist (‘bama) ram their rhetoric minded heads against a wall I am giddy with joy of what is about to come.

Back in 2008-09 the stock market dropped and signaled the formal kickoff for what has been considered “The Great Recession.” Back then I was a young and inexperienced baby gazelle. My wife and I were at the onset of putting together our emergency fund and beginning to snowball our debt. I knew routine and systematic investing would come in our later baby steps, but I wanted to move like a bat out of hell in ridding our lives of debt. Then the market dropped and collectively we were in a free fall.

At that point in our fiscal journey investing wasn’t even on my radar. We were getting through our first steps in building a sound personally fiscal foundation. When we did get to investing I resolved to follow a long term approach of buying a diverse group of historically proven mutual funds in our portfolio and hold each asset for at least five years. But back in ’08 my wife had a, “feeling.”

As the market fell my wife proposed, that for a few months as the market was hitting its perceived bottom, that we pay minimum payments on our debt and begin investing with all of our disposable income through our brokerage account. Admittedly in essence she was trying to time the market to maximize “buying low.” I was reluctant, hesitant and frankly scared to do so. But as Dave Ramsey says, sometimes as a husband you don’t have to mentally, “get it,” you just have to physically, “get it.” So I charted out the free fall for a few weeks and used our disposable income, when I subjectively found the market’s bottom, to invest instead of pay off debt.

As a disclaimer, as of today we have not sold a single mutual fund that we have purchased…EVER! After about 3 months of investing with every dollar we could squeeze out of our budget we went back to the baby steps and eventually became debt free with a fully funded emergency fund and routinely invest for the long term through our retirement vehicles and taxable brokerage account. But nevertheless, buying when there was blood in the streets was fiscally one of the best decisions I have made in the last five years. Our investment returns are solid and we hold a diverse group of mutual funds with historically proven track records and our first dollars investing found us buying these superstar mutual funds at great prices.

So this year I am stoked to base jump in style off the upcoming fiscal cliff. We have close to $5,000 in cash ready to be invested when the market drops. But of course there is always the “what if” factor. What if the government kicks the can down the road and postpones the cliff deadline to Q2 or Q3? What if they reach a resolution? If a resolution is reached or the fiscal cliff deadline is moved I won’t swoop in and spend $5,000 buying mutual funds all at once. Instead I will systematically buy historically proven and diverse mutual funds monthly until the $5k is depleted. If a resolution is reached I’ll work that cash amount to 0 over a period of maybe 3-4 months. If they kick the can down the road I’ll subjectively buy some mutual funds but will still keep at least $3-$4k in cash for when the new deadline approaches.

Please allow me to be clear. I do not advocate trying to time the market. 99% of the investing I do is systematic and consistent over a long period of time. I buy mutual funds that have been around for at least 10 years, have average annualized returns of at least 12% since inception, I plan to hold the investments for at least 5 years, and I spread my investments equally between these 4 types of mutual funds: Growth, Growth & Income, Aggressive Growth and International.     

But every now and then a major geo-political event hits that sends the markets down. In the past it has been things like the Cuban missile crisis, September 11^th, the bombing of Pearl Harbor, the dot com bubble burst and the real estate bubble burst. I expect the fiscal cliff to push the overall market down and when it does, I’ll be ready with just a little more cash than usual J!



My Election Night Recap

I’ll start with this. Whether it was Obama or Romney that won last night, neither has the ability nor capacity to influence my personal journey to prosperity. Sure, Obama’s policies will raise my taxes (I am not a high income earner but will be forced to contribute 3% of my income for Obamacare, and my fellow Americans will also) and Romney’s policies would have lowered my taxes. But at the end of the day it is my decisions and actions to eliminate debt from my life, have an emergency fund, prioritize retirement and a cash purchase for a home, invest with long-term time horizons in mind with quality investments, make well informed and fiscally responsible choices with insurance options and live below my means, that has allowed me to confidently carry on with my march toward a net worth of one million dollars and climb the socioeconomic ladder.

With that said my votes here in Illinois got thoroughly thrashed. For the top 2 topics of concern within my state, I voted for Mitt Romney and to amend the State Constitution to modify the approval process to expand public employee retirement benefits. In Illinois 2.9 million people voted Obama to 2 million for Romney, and the amendment to the state constitution failed as the 3/5 majority required to pass the amendment was not reached. So the people have spoken: Higher taxes for all and the state (Illinois at least) can continue approving pension increases that they can’t afford with incredible ease… Awesome! Simply awesome!

Looking forward we will have the fiscal cliff to enjoy as well. Now I am not all doom and gloom, but it will be entertaining watching Obama fight with the House who will fight with the Senate about what to do with the edge of the cliff approaching. I’ll lay it out simply: Neither side will meet in the middle to negotiate a deal, we will fall off the cliff and the market will drop in Q1 2013. Which is why it is even more important for me to stress to you to invest with long time horizons of at least five years. We can’t control the short term stupidity of our government but we can count on American businesses, as a group, surviving and thriving over long time horizons.

I do find it disheartening to see the Dow down at about 2.5% right now.  I would have sworn up and down that following an election night in which victory was clear for either candidate that the market would have responded positively the morning after. But as my wife lovingly pointed out to me last night, (loosely paraphrased) “Now businesses know the environment they will be facing for the next 4 years. They will be getting taxed at higher rates and Obama’s policies deter their strategies to grow and hire in the US…The market will be down tomorrow.”

Damn, she was right.

But I want to end on an uplifting note, not one that makes it look like my puppy was taken out back and shot. So I’ll end with this. Upward economic mobility is alive and well in this country, regardless of which doofuses we have in elected offices all across this country. It’s not easy. It’s been hard to make the conscious choice to live below my means, payoff $80,000 worth of debt in 3 ½ years, prioritize savings and say no to myself in the short term. But it’s been worth every second to rely on myself for my well being and create financial peace within my life. I believe with every ounce of my spirit, that each and every person out there can be a fully functioning six cylinder engine. By having an emergency fund, paying off debt, saving for retirement, saving for college and living below our means, we all have the opportunity to achieve financial security regardless of what is going on in the world around us.