The first decade of the 21st Century was filled with crisis. The Sept. 11, 2001, attacks led to two wars and a weak economy. After a mid-decade recovery fueled by the housing market, the real estate bubble burst, leading to the 2008 financial crisis.
President Barack Obama was then elected after selling the American public on a message of hope and change. But the right-wing reaction to his election was swift: The Tea Party quickly formed and helped Republicans to take control of the House of Representatives in 2010. Since then, the country has been in political gridlock. The downgrade of U.S. credit—and the financial fallout that followed—is only one of the consequences of inaction in Washington.
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At the same time, the European financial crisis continues to threaten to destroy the euro zone. If this occurs, the fragile economic recovery in the United States would likely be reversed. Most financial analysts predict that until the euro crisis is resolved and the next U.S. president is elected in November, uncertainly will continue to dominate world markets.
U.S. consumer confidence fell sharply in the last decade, and has remained low in 2011 and 2012. This means it has been more than a decade since consumers felt good about the economy and their personal finances. The United States is now in an age of sustained pessimism.
This pessimism is changing the way people manage their finances. Some investors have shifted strategies to more conservative positions in order to feel safer. Others have put off financial planning altogether, adding to a feeling of helplessness and desperation. And as the age of pessimism continues, failure to plan could doom consumers to years of financial difficulty.
Factoring pessimism into investment strategies. Scott Thoma, a member of the investment policy committee at Edward Jones, says uncertainty and the pessimism that comes with it can be managed with changes in investment strategies. For instance, investors uncomfortable with potential drops in the stock market can reallocate money into safer, more predictable asset classes.
"We have certain things within our asset-allocation models that help to deal with the current situation," Thoma says. "We're not going eliminate the uncertainty by any sense, but there are things we can do within the funds to ease concerns." He says long-term investors should remain calm and avoid panic caused by steep market fluctuations.
Lisa Kirchenbauer, president of Omega Wealth Management in Arlington, Va., says investors should talk to financial advisers about their priorities before making any dramatic changes to investment strategies.
"We spend a decent amount of time talking to clients about what's important in their life. What do you want to make happen? We try to get them back on the long-term focus. You have to determine exactly what you can control," she says.
The psychology of pessimism. Kirchenbauer says the biggest mistake one can make is to let pessimism stop planning. Making a financial plan is difficult for many people, she says, simply because they have not lived as adults during a time when the country was more optimistic.
"The baby boomers have seen the hope. As we move into generations X and Y and the millennials, it's a different deal. They haven't seen hope," she says. "People want to be optimistic—without hope, why bother? But it's tough to hope when every day you see the bad news out there, whether in real estate or Europe."
According to Kirchenbauer, the best way to combat pessimism is to have firm financial plans in place and stick to them. "What gets people in trouble is when they don't have a plan. That can be really nerve-wracking. Without a plan, everything can take you down a side road. If you don't have a clear game plan, you can feel really unsure and every piece of news and every downturn will make you nervous," she says.