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Money Matters – Last Week Of The Year: State Of The Economy

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – Where did this year go? Time seems to slip through my fingers like sand; a year ago I sat in this very spot and talked about the economy.

[Audio http://cbsboston.files.wordpress.com/2010/12/december-29-2010-money-matters.mp3|titles=State Of The Economy|artists=Dee Lee]

What was my outlook for 2010? I was concerned that corporations would continue to cut jobs as they wanted to improve their bottom line and they did. Many companies are sitting on a pile of cash.

In addition, I expected the stock market to be a roller coaster ride and it certainly was. But ending on a happy note.

Consumers did not disappoint me, they are saving more and being frugal, but they did have a good time at Christmas though.

The wild card for 2010 I thought would be the housing market and it was. It is a very slow recovery and it may be years before prices return to their pre-2008 levels. That does not help the homeowner who is in an upside down mortgage.

So what do I see in my crystal ball for 2011? It’s cloudy! But I think it’s good.

It will continue to be a jobless recovery but I do see the light at the end of the tunnel. For a while, I thought someone had unscrewed the light bulb in the tunnel but there is hope.

Jobs are recovering. People are working again. Some companies are giving raises and bonuses. However, if you are still unemployed that does not make you feel good.

The price of oil will not topple the economy but we should not forget about conserving energy. Wind and sun are good alternatives for producing electricity.

Consumers will continue to tighten their belts. Consumer spending accounts for about 70% of GDP and with less spending the economy will take longer to recover.

As the stock market and the housing market recover consumers will feel wealthy again. And they will begin to spend again. But not like they did at the beginning of this century and they will be a lot smarter about borrowing.

I think 2011 will be a good year, one in which the stock market continues to recover and investors get smarter about owning a balanced portfolio. I’m not good at predicting a number for the market but I do believe it will be positive as the world economy continues to recover.

Housing will be slow to rebound, but will remain affordable. Sellers will continue to lower prices if they want to sell and those who had been on the sidelines will become buyers. Interest rates will stay low enough to keep the first time buyers interested.

The wildcard for 2011: our government. If it becomes gridlock nothing will get done. And the world economy. A virtual unknown!

One more thing: A bit of history. The last major recession was 1973-1974. If you had invested $1 million in the S&P 500 on January 2, 1973, one year later you would have $853,450, one year and 9 months later it would only be worth $573,780.

If you had pulled out of the market and put your money in a 5% CD in 10 years you would have $934,627. Almost fully recovered.

But if you had not touched the investment you would have recovered in two years and in 10 years you would have had $2.4 million.

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