If we’re wiser, we’ll recover, but it’ll hurt

When the panic of ‘08 subsides, there will be anger.

Some of it will be expressed Nov. 4. At a later date, upon more honest reflection, we’ll begin to understand that the high life is a beer-drinking slogan, not a recipe for living.

MY OPINION: THOMAS OLIVER
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Even the most prudent among us will admit to benefiting from the debt that has been accumulating in every corner of the world. Our investments rose with the stock market. The ever-increasing value of our homes made us think we were really smart. We began to reward our children with limo rides for graduating from high school; we sent them to colleges that cost more than the average house.

Our collective excesses were exceeded only by our general lack of understanding about basic economics. That there is no such thing as a free lunch is perhaps a hackneyed saying, but we will come to appreciate anew its truth.

The wealth devastation is hard to grasp. But it’s somehow easier to deal with the big picture than to delve into the personal. Easier to contemplate that the wealth this nation has lost is the equivalent of two Chinas than it is to peek at our 401(k)s.

As hard as it is, reality is setting in.

Those who were planning to retire soon have some serious rethinking to do.

Those dreaming of retiring early can no longer indulge such fantasies — fantasies fed by the very bubble we were all in.

It doesn’t matter that you worked hard, saved and owed little or nothing on your credit card. That you’ve driven your car three years after paying it off. You will pay a price along with those who were reliving the Roaring ’20s and drank from the cup of easy credit.

If you were smart, you had a 401(k) invested in stocks and bond mutual funds. But no amount of diversification could have withstood this tsunami.

If you’ve lost 40 percent (and the Dow is off 40 percent in the last year), then recovery will require your nest egg to earn a yearly rate of 10.8 percent for five years to get back to where you were at last year’s high. That isn’t likely. You did better than most if you averaged 7 percent over the previous five years.

Earning a more realistic yet still very healthy 5.2 percent annual return would take 10 years to get back to where you were, says Dorsey Farr of the investment advising firm French Wolf & Farr.

The adviser to those who can afford advisers said we should resist chasing after, or running from, past performances. The best advice is still the best advice: Be truly diversified. That means investing in index mutual funds covering stocks and bonds both domestic and foreign, as well as an inflation protection fund, Farr says.

Think long term.

Avoid debt.

The best news last week was that we paid off more debt in August than we took on for the first time in 10 years.

The bad news: we still owe $2.6 trillion.