Money matters may not rank high on most people's list of things to give thanks for this weekend. The unemployment rate has edged past 10%, its highest level in 26 years, and nearly one in four homeowners owe more on their homes than they're worth. Many households are still in bad shape.
With that as a backdrop, we should all be thankful if we're able to enjoy a hearty Thanksgiving repast with family and friends in our well-heated, well-lit homes. And if we have extra money to set aside for savings and investing, we should feel truly blessed.
In fact, despite all of the economic pain, investors actually have quite a lot to be thankful for this holiday season. Here are some items you can put on your short list.
The Bear Market
Yes, the bear market was painful, but it also teed up the best stock-buying opportunity in a generation. If you had the temerity to invest $10,000 in an S&P 500 Index fund around the time when stocks bottomed in early March of this year, your investment would be worth more than $16,000 today. Of course, it's close to impossible to identify the absolute bottom of the market (though my colleague Gregg Wolper was bang-on with this article). Still, the basic lesson is one worth remembering. When you least feel like investing, it's often the best time to put money to work in stocks.
Relatively Low Dividend and Capital Gains Tax Rates
Tax rates are set to change in 2011, but until then investors have it pretty good. The long-term capital gains tax rate is just 15% for most investors through the end of next year (0% for those in the two lowest tax brackets!), making it a good time to consider selling highly appreciated securities. The dividend tax rate is the same low rate--15% for most investors. If you share my colleague Josh Peters' view that dividend payers are cheap relative to the broad market, low dividend tax rates are another reason to add them to your portfolio.
IRA Conversions
If you're a high-income earner and haven't been able to contribute to a Roth IRA to date, you'll soon get your chance. Beginning next year, investors of all income levels will be able to convert a traditional IRA to a Roth, thereby ensuring tax-free withdrawals and no required minimum distributions in retirement. Individuals who earn too much to make a Roth contribution should consider making a nondeductible IRA contribution in 2009; they can then convert those assets to Roth status in 2010. Income limits on new IRA contributions will remain in place, but it will still be possible for those high-income earners to take a backdoor way into additional Roth contributions by continuing to make nondeductible IRA contributions and then converting shortly thereafter. It's possible that Congress may close this loophole down the line, given that it doesn't make sense to leave the income limits in place for initial contributions but not conversions. But for now it looks like an opportunity.
A Favorable Environment for Homebuyers
While there's recently been some worthwhile discussion around the issue of whether the tax code should be so skewed to encourage homeownership, those in the market for a home have a lot to be thankful for right now. Mortgage rates remain ultralow, and home prices are depressed in many communities. Perhaps most compelling of all, the Homebuyer Tax Credit was extended through mid-2010 and expanded to encompass current homeowners who buy another home. (You don't even have to buy a more expensive home than the one you have, but that's clearly the goal behind the program.)
Price Wars in Index-Fund Land
Whether you're an avid exchange-traded fund investor or think ETFs encourage unhealthy speculation, there can be little doubt that the advent of ETFs has put downward pressure on index-fund costs. Fidelity and Vanguard have been competing for cheapest index-fund rights for years, and Charles Schwab fired the latest salvo earlier this month, introducing a new lineup of ultra-low-cost ETFs and free trading for Schwab customers. There's no guarantee investors will use ETFs well, but there can be little doubt that low costs are a win for investors looking to obtain no-fuss market exposure. Price wars in the index-fund world also put pressure on active managers to justify their expenses or fold up their tents.
Low Inflation Rates
There's been a lot of hand-wringing about whether inflation will rear its head in the future, but for now it appears to be well under control. Low costs are an expression of weak demand and the economy's still-frail health, so the lack of price inflation isn't a pure positive, but it's a helping hand for households trying to make ends meet amid wage freezes, pay cuts, and job losses. Low inflation is particularly beneficial for seniors living on fixed incomes, because higher costs don't erode the purchasing power of the income they're drawing from their portfolios.
Transparency for Investors
The Madoff debacle--and the financial crisis broadly--illustrated that many corners of finance aren't as well-illuminated as they should be. But for U.S. investors dealing in mainstream investments such as mutual funds, the transparency and investor protections are arguably the strongest in the world. Morningstar's Global Fund Experience Study, released this past spring, scored 16 countries in six key areas, and the U.S. came out on top. Of course, there's always room for improvement--I've been harping on the need for customized, dollars-and-cents fund-expense disclosure for years, and the landscape for investors choosing a financial advisor should also be a lot less confusing than it is. But the U.S. marketplace gets a lot right. And if the Madoff scandal had a silver lining, it's that it helped underscore the importance of conducting due diligence before pulling the trigger on any investment.
