Revisiting a Rant

This year has certainly been a wild ride for investors, the volatility in the market has been extraordinary, we’re “officially” in a recession and the financial landscape has been dramatically altered. But we’ve been here with you through it all, giving you our best advice. Today, and in several other posts, I’m going to re-print some of the pieces we’ve written in the last 12 months both here on our blog and in our free email newsletter, Cabot Wealth Advisory.

Think of it like reviewing before a test–while there’s no pop quiz at the end, there are always new investing challenges to tackle, and reviewing lessons learned in the last year can help you meet them head on.

Of all the pieces I’ve written this year, this is my favorite. It was originally published on November 15, but I liked it so much that I wanted to share it with you again:

“Warning: The following Cabot Wealth Advisory contains a rant.

“After years of buying gadgets, cars and whole wardrobes on credit, the gravy train has stopped. Not only has it stopped, it’s derailed and is hurtling off of a cliff. Many people have locked up their purses and wallets, cut up their credit cards and stopped spending money. American consumers are spent.

“Every day it seems we are bombarded with a slew of figures detailing the low level of consumer confidence and how this holiday season is going to be one of deep discounts and little buying. Already, the list of stores that are closing reads like a who’s who of chain retailers, like Circuit City and Linens-n-Things.

“Many people are eating out less, staying home to cook dinner and actually talk to their families. Some aren’t getting 900 channels on their televisions, so they’re playing games, going for walks or reading. Others are putting money into savings accounts, meaning that when they want to buy a gadget, car or clothes, they will be spending money they have actually earned.

“How dare they!

“The media would have you believe that this is a terrible thing. Maybe I’m old-fashioned, but I was taught to save, invest and live within my means. This means buying a house with a substantial down payment and not overextending credit. Apparently, I’m in the minority on this one.

“Now, I certainly don’t want our economy to go up in flames or grind to a painful halt, but I can’t help but think that this reduction in spending is a good thing, at least in part. For years, many American consumers have made shopping into a hobby, some going to the mall weekly, or even daily, to purchase (mostly unneeded) stuff. I was beginning to worry that bargain hunting would become an Olympic sport.

“So it’s only natural that eventually the tide would turn, that American consumers would put the brakes on and stop overspending. It makes sense that after years of living on credit and not saving a dime, many American consumers would stop, take stock of things and realize that such a lifestyle can’t be sustained indefinitely.

“But things can go too far in the other direction just as easily. Not spending is not healthy for our economy, it will put people out of work and eventually the wheels of commerce will stop turning. While I might think that a return to a more conservative way of spending is a good thing, I wouldn’t advocate a total end to the modern age of consumerism.

“What we need is to find a balance between overspending and not spending. Maybe a whole new wardrobe isn’t necessary every season, but having a few new pieces of clothing probably won’t break the bank. It’s striking that balance that’s going to help lead the U.S. economy out of the rut we’ve gotten it into, and, more important, keep us on a sustainable growth path going forward.

“OK, rant over.”

That’s all for today, I’ll be bringing you more pieces from the year throughout the next few weeks. What’s your most memorable part of the year in the investing and financial world?