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Silver Linings

Financial Planning

October 2001

Silver Linings

There’s no doubt we’re living in troubled times. Turn on the news and about all you hear and see is a reporter framed by phrases like "America's New War." About every other email you get reports of a new virus, a worm or some other Internet predator. Heck - as I'm writing this article I have my antivirus program running in the background to make sure I haven't been attacked by a new version of Nimda.

But, you know what? I'm going to side with our political leaders this time and bet the fundamental American economy will bounce back in the long-term. That means the present pessimism will give way to renewed growth in the economy, my income and the stock markets.

When that happens, I want to be in a position to benefit from that renewed optimism. Here is how you can benefit too.

But, first we issue a standard warning. Everything we say, and it's applicability to each person, requires careful analysis before applying it to a particular individual. Don't get the idea that the analysis should just go to the numbers either. Investment professionals know that one of the first rules of investing is measuring an investor's risk tolerance. It will do absolutely no good to invest in risky stocks with great potential if you can't sleep because you're too worried about the roller coaster ride your stocks are taking.

Enough said, here are a few silver linings to think about.

Mortgage rates

Mortgage rates are the lowest they have been since 1998. For some of us who remember the late 1970s and early 1980s, the current long-term rates are nothing short of manna from heaven. Now is about the best time to refinance a mortgage, or use your home equity to pay off debt creating nondeductible interest. Rates are low and lenders in some areas are having a hard time placing debt.

This is also a good time to look at purchasing a home instead of continuing to rent. If someone is going to get a deduction, why shouldn't it be you? After all, someone is paying property tax and/or interest on the home you presently live in. That means, the rent you pay funds those costs.

Now, you need to have a reason to refinance. One may be that refinancing will simply save money in the long-term. Take, for instance, the homeowner whose current $170,000 loan was taken out 5 years ago at an 8.125% rate. Refinancing over a 15 year period at today's average 6.75% rate will increase the monthly payment by $178.15, but save approximately $9,000 in the long-term, assuming average closing costs.

Perhaps you were lucky enough to incur high medical bills recently that you paid with a credit card. One thing led to another and you weren't able to pay off the debt like you anticipated. Now you're paying 18% to the credit card company. Using the equity in your home will allow you to convert high rate debt to low rate debt and get a tax deduction to boot, assuming you’d be able to itemize.

With interest rates where they are today, it makes all the sense in the world to look at your current debt structure and see if refinancing your home, or buying a home, is for you.

Stock market roller coaster rides

The stock market is in pitiful shape today. The September 11, 2001 attack on America cratered an already sagging market. But guess what, the market is coming back.

History suggests that the market will come back in the long-term in a big way. It may take some time, but after every onset of war, the market first dropped then grew faster than it had before. There is no reason to believe the same won't happen in the present case.

We still have millions of people in the Baby Boom generation who are getting to their peak spending years. Money will still come into the hands of those who do not remember the Great Depression and, thus, are more willing to risk some portion of their inheritance on stocks and other investments. Even better, the United States Government and its allies will find a way to make us feel secure enough to venture from our homes again. That will also fuel economic growth.

With all the silver linings offsetting the current negative news, it seems there’s a perfect opportunity now to invest in the market.

To be sure, you need cash reserves. If you have approximately six month's income in cash or money markets right now, that's about right. The rest can be invested to take advantage of the tremendous opportunities ahead of us. Instead of holding back, we should be actively seeking places to put our investment dollars that give a better yield than our money market accounts.


This month's article is shorter than usual. That's because we want you to focus on the positive aspects of our present situation and take action any appropriate actions to maximize your opportunities.

Not quite sure what your options are? Give us a call and let us help. You won’t regret seeking our advice.

Until November, have a great month and God Bless America!

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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