To shamelessly plug my new book da Vinci and the 40 Answers, I wanted to touch on a couple key insights. One of the first things I want to talk about is viewpoint. To look at things from a different viewpoint can really give you some creative solutions.
What’s going on with the economy today? All the journalists are comparing everything that’s going on to the Great Depression. I thought maybe we should look at it from a different viewpoint.
I asked a leading financial planner what his take was on it
Hey Steve you know it seems like three times a day you hear the journalists talking about “Since the Great Depression, Since the Great Depression.” And they keep talking about how everything’s coming to an end. And it’s a horrible situation; I don’t think it’s really that bad. You and I talk a lot about looking at it from a different viewpoint. So what would be your viewpoint, is it as bad as everyone saying about the Great Depression with things like unemployment, housing, and the financial system? I mean how is unemployment look like from your point of view?
Yeah, that’s a great question. You know during the Great Depression unemployment rates stood at 25%. And even though in the decade of the 1930s, the unemployment rate was still 15%.
Well the unemployment rate today, 6.1%.
Well OK, it’s not…
It’s totally different.
Yeah, it’s like four or five times higher back then, then it is now, right?
So how about foreclosures and stuff on housing, you hear about that everyday too.
Yeah, you know if we compare that to the Great Depression 43.8%. So nearly 45% of all owner occupied homes in the US had a first mortgage in default back in 1934, so just at the end of the Depression. Right now, only 2.75% of loans are in foreclosure with an additional 6.41% or about 6.5% that were at least one month delinquent. So we’re still a long ways a way from seeing the default rates equal to what we saw in the Great Depression.
So it’s like 3% now versus almost 44% or something?
Right, 3% now versus 44% is exactly right.
So it’s like ten times worse than it is now.
How about the banks? All the banks?
You know the banks are another great measuring stick. You know back in 29 to 33, 40% of banks failed.
So at the real meat of the Depression, 40% of all these US institutions were failing. Of course they didn’t have FDIC insurance back then so that didn’t come into play until the mid-1930s. But so far only fifteen banks have been taken over year to date by the FDIC. So fifteen banks have failed year to date, that’s out of 8400 banks in the US. So that is considerably different, so only 0.2% of banks have failed year to date as opposed to 40% in the Great Depression.
OK. Any last comments on “it ain’t as bad as any of the journalists saying it is”
I do a lot of talking to clients and prospects about that very issue. The one point I like to make is that the market appears to be very oversold. If you look at a lot of the key indicators, right now is a great time to get into the market. Do we know how long it’s going to take to recover? No. But do we think it’s going to recover? Absolutely. If you were to ask everybody out there where they think the market’s going to be in the next year, you’ll get a lot of I don’t knows. But if you ask where the market’s going to be in ten years, everybody’s going to say it’s gonna be higher than it is today, so that’s a good indication of where we’ll be then.
OK, that’s Steve Swensen from Commonwealth Financial Network.
Thanks a lot for your time, Steve.
Alright, take care.
One of the forty TRIZ principles, or lenses, as I like to call them, is entitled “Preliminary Counteraction.” What it does is it allows you to take steps to counteract a negative action before it happens. About three years ago, I was talking to Steve about that lens, and he said, “Hey, I know something that would work great for your 401K. It’s something called Future Guard, which is Preliminary Counteraction for your 401K funds.”
So here’s how it works.
Your 401K goes into a ten-year contract. That money is invested into historically high-performing stocks, bonds, and mutual funds, and what you’re hoping happens over the ten years is the market continues to go up like it has historically, and you get a ten to twelve percent return, or better, on your money over the ten years.
But if it doesn’t, if the market tanks for some reason like it’s doing now, there’s two other insurance policies that you have.
There is a 5% roll-up component, so it’s very similar to having your money in a CD for those ten years at 5% annual rate, where today you can only get about four percent. Then there’s another insurance policy that’s called the Highest Anniversary Date. Every year, they look at what the value of your portfolio is at that time and it locks into that dollar value, it can never go backwards.
So at the end of ten years, you get the highest of the three numbers; whatever the market did, and if the market didn’t perform well enough, you have two other complements, the 5% roll-up and the Highest Anniversary Date, as insurance. So it really protects your money over the long-term.
The only downside to this insurance is it costs 0.6% per year, so on a $100,000 401K, it’s going to cost you about $600 a year, but in today’s environment, I think that’s potentially an awesome insurance plan.