Post-September 11 financial planning - Economics

USA Today (Society for the Advancement of Education), Jan, 2003 by Joe Rob

OF ALL THE IMPACTS Sept. 11 has had on U.S. society, its most-profound effect has been on the American psyche. It has shaken the faith so many had in the validity of their conceptions about virtually everything.

Never before in my nearly 40-year career as a financial professional have I seen so many people so confused about so much. None of the old adages seem to apply anymore. Sacred troths have become suspect or simply irrelevant. No one feels this more keenly than those wondering how best to protect the assets they have managed to accrue, and how best to invest them for what seems an uncertain future.

The simple fact of the matter is that we lack historical precedent for dealing with today's new reality. Or do we? Perhaps some of the old adages still apply, at least the one about how the more things change, the more they remain the same.

One of those things, of course, is the need for planning. Its importance was made evident to me years ago by an elderly Jewish couple who were family friends. They had not only escaped the Nazi invasion of France, but had secured compensation from the German government in the 1950s--far earlier than most, and before many people even thought such compensation possible. Their story is a case study of how meticulous planning prepares people for the unimaginable.

I knew the surviving matriarch of this family, whom I'll call the Pearlmans for the sake of this article, in one of New England's commercial fishing villages in the 1960s. Her story was fascinating. At the beginning of World War II, she and her husband owned a prosperous company that made pearl-essence, a by-product of herring bone which was used to add shine and iridescence to nail polish.

When the Nazis invaded Paris in 1940, the Pearlmans managed to escape, just as the Germans were beginning to round up and detain Jews. Making their way south through Spain and Portugal, they finally reached Lisbon, from where they were able to arrange passage to the U.S. This in itself was an accomplishment since, though technically neutral, both Spain and Portugal were, like Germany, fascist states.

The Pearlmans came to the U.S. with nothing more than their sparse carry-on luggage and the extensive records they had made of their holdings. The records would turn out to be their single most-valuable belonging.

Upon their arrival, the Pearlmans moved into a town that had a thriving fishing industry and began working in the fish factories. Their daughter worked alongside them. They lived frugally and after a time were able to start their own factory, again making pearlessence.

Soon after the end of the war, the Pearlmans were again prospering. As European reconstruction began, they submitted claims to the German government based on the comprehensive records they had managed to keep for so many years. In the early 1950s, they received several million dollars in compensation. They invested in New York apartments and hotels, and made yet another fortune. My last memory of the then-widowed Mrs. Pearlman is of her having a "lively" conversation over the telephone with her accountant when she was in her 90s!

Are there parallels between post-World War II reconstruction and the post-Sept. 11 reassessment we are involved in today? The answer is yes, at least with respect to prevailing psychology then and now.

When the Pearlmans escaped France, the world was in the early stages of war. Similarly, we are currently engaged in the earliest stages of the war on terrorism. Certainly, it is difficult to compare the challenges we face today to those of the late 1930s and early 1940s, and we are fortunate that our future seems far more foreseeable, despite its uncertainties. Nevertheless, the insecurity many people feel is similar.

There was no way the Pearlmans could "plan" for the future in the face of the most-calamitous events in modern history, so they did the best thing they could under the circumstances. They took painstakingly comprehensive inventory and kept open every possible option. It was the absolute most that they could do in the face of an unimaginable future. It was their form of planning.

Taking inventory and keeping options open are equally important today. This is not so much because our inventory may be all that we have left of what we once owned, as it was in the Pearlmans' case, but because many of the assumptions we used as the basis for our planning may no longer be valid. Taking inventory will expose the weaknesses and inaccuracies in those assumptions and enable us to realign our plans.

It is a new world in many respects. Financial plans put into place five to 10 years ago were probably based on a number of assumptions that no longer apply. Here are some of them:

* The Dow will pass 14,000 in the near future.

* Blue chips will dependably return 10-12% per year over almost any time horizon.

* The S&P 500 will pump out returns in excess of 15% on average.

* Aggressive growth investing can produce up to a 25% return.

* Technology is the key to growth in a stock portfolio.