The suicide of a hedge fund manager who was severely burned in the snowballing Madoff swindle is a perverse reminder that money doesn’t make us happy. In contrast, some of Madoff’s victims interviewed by financial news networks were remarkably sanguine, which may mean only that they were smart enough to not entrust their entire life savings to a single investment. Others were less fortunate or careful and may have lost everything.
“It’s only money” goes the breezy clichéd response to an unplanned minor expense; an easy sentiment when a poker hand or a celebratory meal is on the tab. It must be a lot more difficult to swallow when decades worth of savings evaporates, along with plans for a comfortable retirement and the ability to give family members a financial helping hand.
So this year-end column may sound at odds with itself, because while money doesn’t buy happiness, prudence and awareness at least help ease the mind in the dark hours when problems magnify and panic seems inescapable.
You didn’t have to be a scam victim to feel the pain this year; unless they were conservatively invested, nearly everyone with an IRA or 401(k) account watched once-reliable stocks and mutual funds crater. The puniest CD rates look absolutely munificent by comparison. But to keep things in perspective, while the recent collapse may have left stock indices where they were a decade ago the 20-year run-up that ended in 2000 brought historic gains for those fortunate enough to have participated.
Something similar happened with housing, as prices skyrocketed before falling back to earth. As with stocks, the worst case was jumping in during the past few years, when market and real estate touts shouted to the rooftops that prices could only go up further. In the interim, the average home got bigger, fancier and more expensive, with a mortgage to match.
The shocking change in direction has sparked newfound interest in thriftiness. If you are of a certain age, you likely grew tired of hearing tales about life during the Great Depression, which followed an earlier decade of excess. Hopefully the massive interventions of government funds – our money, by the way – will stave off a repeat, but there is no certainty that will be the case. Even if the actions avert a new depression, there will be a hangover once the dust settles and the commitments are tallied.
The holidays are a good time to think about what’s really important and to set priorities that match. While most Americans have not been truly reckless, as a society we’ve willfully ignored the inevitable consequences of living beyond our means, both as individuals and as a nation. On reflection, we may find that both the time and money frittered away in pursuit of SUVs, designer jeans and other “aspirational” luxuries hasn’t provided nearly the return that comes from spending more time with family and friends, or using talent or resources to help others.
I’m not planning to stash my pay under the mattress or give up a love of wine. But the hard lessons of 2008 have led to New Year’s resolutions that include rooting out unnecessary living costs, slimming down the clothes closet, questioning conventional investing wisdom and finding more ways to help others both in and outside of my family.
If I can follow through, I’m confident that even if my 401(k) balance doesn’t look healthier next December, 2009 will have been a very good year.