Don't Worry, Be Happy!
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This article was first sent to Fools as part of our 'Your Finances In 2012' email campaign.
For the last five weeks we've been running a series of articles built around David Kuo's 'Your Finances In 2012' report.
Amongst other things, David predicts that house prices will fall 20% in 2008 while pensioners will be worse off in 2012 than they were in 1980. So that's bad news for many people over 60 and also for many property owners.
On the other hand, Fools hoping to get on the property ladder should keep their fingers crossed that David is right.
Overall, I'd say David's report has a fairly gloomy tone. However, in the last article of this series, I'd like to reassure any nervous Fools out there.
Why worry?
At the risk of sounding a little, shall we say, 'American', I'm an optimist. We've seen huge technological progress over the last twenty years and that kind of progress looks set to continue. What's more, innovation should lead to further economic growth over the long-term, and the majority of British people should be able to benefit from that growth.
Don't get me wrong, I'm not saying that the economic cycle has been abolished. There will still be recessions - one may already have begun in the US right now - but over the long-term most of us should still get richer.
The numbers
Let's look at some figures. Over the 50 years prior to 31 December 2006, UK shares delivered real return of 7.1% a year. In other words, even after you've removed inflation, the annual return on your investment would have been 7.1%.*
And don't forget that 50 year period included the early 70s when oil prices spiked suddenly, inflation was way too high and the trade unions were far too powerful. Then there was another recession in the early 80s followed by yet another one in the early 90s. But life carried on......
It's a similar story when it comes to property. I accept there's a strong chance that UK property prices will decline this year, but that doesn't mean that the long-term trend won't still be up.
As Cliff D'Arcy shows in this article house prices have only fallen in four years since 1983. And there have only been six falls since 1952!
I suspect that the long-term trend for both property and shares will continue to be upwards.
Does money make you happy?
And anyway, is money everything? Becoming richer doesn't necessarily make us happier. Some studies suggest that when it comes to happiness, relative wealth is more important than absolute wealth.
In other words, if your total wealth is three million pounds, you may not be happy if your friends are each worth six million.
I find that quite encouraging. If absolute wealth isn't that important when it comes to happiness, surely we can train ourselves not to focus too much on relative wealth as well?
So even if your finances do suffer in the run-up to 2012, it doesn't necessarily mean that you will be unhappy. That's especially true if you've invested the time to have good friendships, strong family bonds and interesting pastimes outside work.
Still, I'm not saying that money doesn't matter at all. And if you want to build wealth for the long-term, say for 2022, consider investing in the stock market.
If you then decide to invest in shares, open an account with The Motley Fool Sharedealing Service.
Most importantly, don't worry, be happy!
*Figures taken from the Barclays Gilt Equity Study 2007.
