A Case for Optimism

"For I myself am an optimist. It doesn't seem to be of much use to be anything else," Winston Churchill.

I have been reading several articles lately on how gloomy the mood is in America about the future. A recent Washington Post survey found that 75% of Americans are unhappy about the direction of our country.

Let's think about this gloominess for a minute. Imagine a person who was living in 1800 coming to America in a time machine. He/she finds:

• Economic prosperity unimaginable to someone living in 1800: air conditioning; heating; dishwashers; ovens; televisions; computers; cars; airplanes; the Internet, etc...
  
  
• Life expectancy of around 80 years versus 35 years.


• Less than 1% of infants dying in childbirth versus 30% of infants dying in childbirth.


• Freedom. No slavery. No religious witch hunts. The ability to practice a mulititude of faiths and beliefs without fear of death or imprisonment.


• The ability to travel safely from California to New York without fear of death by disease or lawlessness. For that matter, the ability to travel almost anywhere in the world without huge risk to life.

The list could be pages long. We have a huge case of ungratefulness and excessive complaining disease in this country. I am hopeful that the national mood will change. I believe that the future strength of our nation depends on it.

Christians should be living by example with a foundation of optimism and hope. I have three reasons why I believe an optimistic outlook is called for:

1. The future is extremely bright.

From a biblical perspective, we are called to be optimistic. God has revealed some things about our eternal home- Heaven. We can point to a multitude of verses on this issue, but perhaps none as powerful as Revelation 21:3-4:

"Now the dwelling of God is with men and He will live with them. They will be His people and God Himself will be with them and be their God. He will wipe every tear from their eyes. There will be no more death or mourning or crying or pain, for the old order of things has passed away."

The hope of a resurrected, perfected body in a resurrected, perfected earth is our hope. This hope is an anchor to the waves of trials that toss us around and attempt to make our minds and focus unstable.

I am optimistic about life because I am optimistic about God. Am I optimistic about human nature? No. But a quick view of history shows an amazing story of God working through time and human stewardship to bring about incredible progress. Every period of history had its share of potential problems that were going to derail the planet and doom civilization. And yet God has restrained evil and promoted good to give us a partial glimpse of eternity where evil will be non-existent and good will be natural.

For this reason, I am optimistic about the future. God will do some great redemptive works through humans. His common grace causes the sun to shine on the righteous and unrighteous. We often look at the future and all we see are problems. But the future always holds difficulties mixed with opportunity. It is our job to focus on the opportunities and how we can participate with God in redeeming creation.

2. I believe there will be significant reform in energy, education and health care and these reforms will usher in a new era of economic prosperity.

There is an old saying in economics: "there is no better cure for high prices than high prices." People always have a tendency to think that prices that have risen in the past are going to continue rising at a similar rate. But then innovation occurs. Scale happens. Prices fall. The personal computer and mobile phone are two examples.

We have some bright minds in America. The economic incentives are in place. I expect mind-boggling innovation in the areas of energy, education and health care. The potential for greater efficiency at lower prices in all three industries is huge. These three industries have the potential to revolutionize the US economy for the better.

Of course, all three industries could be screwed up worse than they already are through excessive government intervention and waste. But history is on my side here. The world is moving towards greater personal responsibility and freedom. It will be hard for a society to go against that trend and remain competitive long-term.

3. Optimism attracts opportunities

I am not talking about self-help silliness here. The book of Proverbs is full of this truth. "Without vision, people perish"- Prov 29:18. "As a man thinks in his heart, so he is"- Prov 23:7. A friend of mine- Gary Randle- says, "God takes care of the birds of the air. But they don't sit around on wires with their mouths open. They go looking for worms."

We should always maintain an optimistic view of God's ability to provide for our needs no matter how dark the situation looks. God often works His greatest miracles in our lives at our times of greatest despair and weakness.

I watched a movie a few weeks back called "The Mist". It was a Stephen King film. I don't recommend the movie. It is a depressing film. Basically, an army experiment goes bad and infests a town with human sized insects that kill anyone in their path. One group holds out for a long time in a grocery store and then makes a daring escape in a car to drive out of the mist. They run out of gas.

The situation looks so dismal and bleak that they agree to have the main character kill everyone in the car rather than being eaten by these insects. He has enough bullets to kill everyone but himself. After he kills his friends and young son, he walks out of the car to meet his grisly fate. But then the cruel irony sets in. He is rescued within minutes. If only, he hadn't given up. If he would have persevered to the end...

I think the lesson is good there. Never, ever, ever, ever give up. Persevere even when odds look dismal. God is with us. Romans 8:31, "If God is for us, who can be against us?" We should be overflowing with hope, faith and optimism.

As always I preach to myself first.

For His Glory,

Ashley Hodge

Lessons Learned

I have just passed my 15th year of being in the financial advisory business.

God has been gracious to teach me some things along the way.

I want to share some lessons learned that relate to personal finance. These are lessons that we should all revisit often.

Like all wisdom in life, we need to have these concepts pounded into our minds and hearts on a regular basis. Our natural inclinations are to do foolish things with the resources that God has entrusted to us.

Proverbs 14:12, "There is a way that seems right to a man, but its end is the way to death."

Here are five lessons that I have learned along the way that if followed will help you become a better steward of financial resources.

1. Wealth is most often accumulated through hard work, patience and discipline.

Proverbs 21:5, "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty." I have read that 50% of Americans believe that winning the lottery or suing somebody are the two top methods of obtaining wealth.

In 15 years of being a financial advisor, I have had a few clients who have experienced a financial windfall through a large inheritance or lawsuit. I have never had a lottery winner as a client. But I wouldn't expect the results to be any different. The vast majority of sudden wealth is depleted within 10 years. The amount doesn't matter.

The habits that are required to obtain wealth are the same habits that are required to maintain wealth. They include:

• Spend less than you make
• Work harder than the average person
• Save on a regular basis
• Be a patient investor- sticking to a plan despite current economic climates

One example of many is a client that I have had for 14 years. She was a school teacher who never made more than $35k per year. But she was frugal, a hard worker and a saver. And she has over $1 million invested with me. Less than 15% of that money came from inheritance. The rest is from personal savings and compound interest over the years.

2. Invest like an institution to enjoy better results over time.

There are three reasons why institutions generally perform better than individuals over time:

• Follow an investment policy (philosophy) with discipline
• Avoid emotional extremes
• Properly diversify to reduce large losses

A recently released study by Dalbar showed that institutions averaged 10% per year from 1997-2006 and individual investors averaged 6% per year during that same time frame. On an investment of $100,000 the difference is having $259,000 at the end of 10 years or having $179,000.

Most institutions follow a strategy that includes assets such as: stocks, bonds, real estate, absolute return, commodities and currency investments. They spread the risk and don't allocate a huge percentage to any one area. Each of these assets has its advantages/disadvantages. But a properly diversified portfolio can help an investor manage inflation and principal risk.

3. A simplified, organized life leads to less stress and greater effectiveness.

I was talking with one of my clients last week who had made the decisison to downscale housing by purchasing a house that was 1/2 the cost, 1/3 of the yard and less square feet. I asked her if she ever regretted that decision? Her answer, "It was the best decision I made. I have much less stress and things to worry about."

That has been my common experience in talking with clients over 15 years. Simplicity is the better path. Ecclessiastes 7:29, "God has made us simple, but we seek out our own complexities."

Speaking from personal experience, organization is key. I went through a random line-by-line audit of my tax return in 2006. I considered myself fairly organized before the audit, but there is nothing like a full line-by-line audit to expose the weaknesses in your organizational plan.

The audit turned out fine. But I spent probably 40-50 hours preparing and locating documents that were needed for the audit. Since that experience, I have started some new organizational processes. In addition to being ready for an another audit if it ever occurs, I have seen some fruit from these efforts.

For example, I update a mileage log daily. By measuring this regularly, I have noticed that my business mileage has decreased some. I start to question the wisdom of making trips that I wouldn't have questioned in the past. Some of this probably has to do with higher gas prices. But I am convinced the biggest factor is better organization.

The more important things you measure, the greater your success will be with those important things. I believe the key is to determine what is important to measure and focus on and to get rid of everything in your life that is unimportant.

Henry David Thoreau's quote has always stuck with me, "Most people live lives of quiet desperation, but I have chosen to live deliberately." Better organization leads to greater awareness. Greater awareness leads to better decisions. Better decisions leads to less stress and greater effectiveness.

4. Work until your mind and/or body quit working.

Very few people can afford to fully "retire" from paid work in their 50's or 60's. If you can't live on a 4% income stream from your accumulated assets, you probably can't afford to quit working.

I am convinced that biblical wisdom encourages leading a productive, others focused life until we die. Jesus said, "We must work the works of Him who sent Me while it is day; night is coming when no one can work"- John 9:4.

If you are in a strong financial position to make working for pay optional, you should still consider how to use your time and resources to positively affect others. If you are worried about not saving enough for "retirement", you should consider working for pay at something you enjoy and not trying to place high assumptions on your financial assets to perform above expectations.

I read this week that 27% of Americans believe that they can pull 10% per year from their retirement assets (Investment News, USA Today). You would have to be fully invested in growth assets and have a raging bull market for the next 30 years to make that doable which is likely pure fantasy.

My experience is that the people with the highest expectations are the most likely to pull out in panic when we have a bad stretch. So keep your expectations low and work as long as you can. Several studies on happiness have shown that one of the keys to happiness is low expectations.

5. Reduce or eliminate debt and build up cash reserves

When things are going well for you economically, there will be a temptation to buy things- a boat, vacation home, art, etc... But wise people make sure the basics are taken care of before purchasing luxuries. Two of those basics are:

Eliminating all debt. Romans 13:8, "Let no debt remain outstanding except the debt to love one another." You can make some financial arguments for certain debt- low interest mortgage; education; investment/business loans. But debt can lead to unexpected disasters as we have seen with the credit crisis on Wall Street this past year. You are better to strive towards a debt-free lifestyle.

Building up cash reserves. There are plenty of online banks competing for your cash with attractive FDIC-insured yields. You should strive to keep at least a year's worth of expenses in a cash account. Not only does this provide help in times of unexpected financial emergencies for your family. But it also puts you in a position to help others in need.

Obviously, you can take this to an extreme where you hoard money. Our trust should never be in our net worth. It should always be in the God who controls the future. But saving for disaster is a biblically wise goal. One example of many in the Bible is Joseph feeling led to store 20% of the grain for seven years of abundance in preparation for a great famine that was coming.

Hopefully, you have been reminded of some important ideas to concentrate on if you are reading this. I heard a sermon last week where the preacher said, "We never, never, never, never, never, never, never, ever outgrow our need to hear the gospel preached to us over and over." Our hearts are prone to wander. Likewise, we never outgrow our need to be reminded of financial wisdom.

It is probably my greatest motivation for keeping this blog. To remind myself of what I know in my heart to be true, but occasionally lose sight of.

For His Glory,

Ashley Hodge