MONEY Economy

What’s Your Money State of Mind?

Money magazine's exclusive poll reveals both improved confidence and lingering anxiety about our financial well-being.

Money's exclusive survey reveals mixed emotions when it comes to our personal economy: We're feeling pretty good today, but worried about our prospects for the long run.

At first glance the Brough family of Dallas seems to have emerged from the tumultuous economic events of the past six years unscathed.

Sole earner Richard, 44, a project manager in software consulting, worked steadily throughout the financial crisis — even landing a new job that pays $45,000 a year more than his old one, which pushed his salary comfortably into six-figure territory. The value of the home he shares with wife Kelley, 46, and two of their four children (ranging in age from 15 to 27) has rebounded to pre-2007 levels, and so has his 401(k).

Yet five years after the official end of the downturn, Brough feels anything but confident about his finances.

“I’m more obsessed with security and worried about the future than I was during the recession,” he says. “Even though I was making less then, our money seemed to go further. I’m anxious about being able to pay for everything we need, anxious about our savings, anxious about staying out of debt.”

The results of MONEY’s new national survey of more than 1,000 Americans age 18 and older reveal that most people share Brough’s concerns: The Great Recession may be over, but a Great Insecurity seems to have emerged in its wake.

True, the majority of respondents acknowledge that their finances are better now than they have been in some time. About three-quarters report that their situation has stabilized or improved compared with a year ago; less than half felt that way when MONEY posed that question in 2009.

Indeed, in that earlier survey, only about 10% said they were doing better than the year before, vs. 30% now. And far fewer folks seem to feel as if they’re teetering at the edge of a financial cliff: Just 24% say their circumstances have gotten worse over the past year, vs. 51% in 2009.

Meanwhile, people are even more optimistic about the year ahead: Almost nine out of 10 expect that their finances will be the same or better 12 months from now.

Yet while the outlook for today and tomorrow has brightened, the day after tomorrow appears decidedly grayer. Six out of 10 respondents own up to being worried about their family’s long-term economic security, and even greater numbers register anxiety when getting down to specifics; they’re really worried about having enough money for retirement, how they’d manage if a financial emergency arose, whether safety net programs such as Social Security and Medicare will be intact when they need them, and how they’ll pay for health care.

Moreover, that undercurrent of anxiety cuts across virtually all groups: Young and old, men and women, married couples and singles, even the affluent — all shared the same concerns.

Related: How we feel about our finances

Some of the fretting may be the result of a lingering hangover from the financial crisis. “People are influenced by what is more recent and most vivid, and that is still the recession,” says behavioral finance expert Meir Statman, a professor at Santa Clara University in California. “We fear that what happened in 2008 will happen again.”

The current state of the economy is also cause for continuing concern. “The unemployment rate is still pretty high, and there are a lot of questions about what the government is going to do,” says Olivia S. Mitchell, a Wharton economics professor who has studied the impact of the financial crisis on U.S. households. “We’re in an environment of pervasive uncertainty that’s not going to go away for years.”

What is causing the most agita about our financial future — and why? How has that affected the way we manage money? And what are the best steps to alleviate our anxiety and move forward? The answers follow, along other insights from the 2014 Americans and Their Money survey.

We’ve regained some stability — and faith

When MONEY polled Americans about their finances in 2011 and 2009, the nation was hunkered down and wrestling with post-recession panic. Families had pulled back drastically on spending, postponed vacations and major purchases, and even curtailed giving to charity. People were deeply worried about losing their jobs or getting a pay cut, concerned about the eroding value of their homes, and anxious about big losses in the financial markets.

Five years ago, when asked whether they’d be better off putting money under the mattress or in stocks, half of the respondents chose the bed.

Now that home values and stock prices are up and unemployment is modestly down, a lot of that fear has abated. This year, for instance, 71% of those surveyed opted for stocks instead of the mattress. Folks are once again comfortable tuning out the daily movements of the market: Only about a third of those surveyed said they were laser focused on financial news, vs. two-thirds in 2009.

There’s also a greater willingness to stretch for risk: In the most recent poll just over half of Americans said it was more important to keep investments safe than to aim for a higher return. While that’s a substantial number, it’s down from 64% three years ago. In general, concerns about losing money in the market, declining home values, and being laid off have dropped to close to the bottom of the collective worry list.

Related: 5 ways to reduce your financial anxiety

Other signs bolster the notion that Americans are backing away from the financial bunker mentality that swept the nation after the recession. A Challenger, Gray & Christmas analysis of employment data, for instance, found that more Americans are quitting their jobs, reflecting growing confidence in their ability to find a better position elsewhere.

After years of relative frugality, Americans are loosening the purse strings a little. Sales of big-ticket items such as cars and new homes recently hit six-year highs, and the fourth quarter saw the largest quarterly increase in outstanding credit since before the recession.

Among those feeling calmer is Ralph Schmitt, 69, of Fortson, Ga., whose savings fell by a third in the crash.

When the recession arrived, Ralph, who had planned to retire in 2008, decided to postpone that step. He and his wife, Kathleen, did not sell any investments, however, and by late 2009, with their portfolio growing again, Ralph felt confident enough to quit for good.

“I was still worried about the uneven recovery and our retirement savings,” he admits, “but I believed in the resilience of the U.S. economy and the momentum of the stock rebound.”

Besides, he says, he and Kathleen, 67, who stopped working in 1993, felt they could live on less, having drastically cut back on their spending for travel, fine dining, and theater.

Today the Schmitts’ portfolio is back to where it was in 2007, and the couple have “kicked up” their spending accordingly. “I wanted to travel extensively with my wife while we still had our health,” says Ralph.

Good habits have held

We may be opening our wallets again, but that doesn’t mean we’ve abandoned the fiscally prudent practices adopted after the crash. Nearly three-quarters of those in the MONEY poll reported that over the past three years they’ve been cutting back on luxury purchases and eating at home more often — a modest drop from 2011, when consumers were still shell-shocked from the financial crisis, but a big increase from the 2009 survey.

Nearly six in 10 say they feel guilty about buying something they don’t need, virtually unchanged from three years ago. And six in 10 say they’re trying to beef up their emergency cushion, a huge jump from 2009, when less than a quarter said the same. Indeed, the national savings rate, while down from its post-crash peak, is now 4%, about where it’s been for much of the past three years and substantially above the 1% rate of the pre-crisis boom years.

Whether we’ll be able to maintain that restraint for good, however, is unclear. “We’re not back to a status quo environment that would allow you to make those kinds of judgments,” says Scott Hoyt, senior director of consumer economics at Moody’s. He thinks consumers will let loose eventually: “Underestimate the desire to spend at your own peril,” he says.

It’s particularly tough to assess the long-term trend while the recovery is still so uneven, notes Caroline Ratcliffe, a senior fellow at the Urban Institute, pointing out that some groups, such as high-income baby boomers and retirees whose wealth is tied to the stock market, are feeling more flush than others these days.

Jim Durkis says the improving economy has not changed his habits — yet. The government lawyer and his wife, Deborah, an elementary-school teacher, both 50, were looking to buy a bigger house near where they now live in Albuquerque but decided against the move when housing values in the area declined.

Since the recession, the family, which includes Jason, 22, and Kaja, 21, have switched insurance companies, delayed vacations, and cut cable — though they signed up again last summer after Deborah, a former-spender-turned-bargain-hunter, found a good deal.

Though both spouses are working and he has a solid pension plan, Durkis says he’s still focused on saving. “I’m not convinced there’s been a true recovery,” he says. “I’d rather have extra money, just in case.”

Additional reporting by Kerri Anne Renzulli.

Part 2 of Money magazine’s survey: The long term still looks uncertain

MONEY Economy

Americans Still Worried About Their Financial Future

Six out of 10 people surveyed by Money magazine own up to being worried about their family's long-term economic security.

Most Americans believe that the Great Recession is over, according to MONEY magazine's new national survey. But a Great Insecurity seems to have emerged in its wake.

Many of us are sticking to the good financial habits we adopted after the crash — a trend explored in Part 1 of this story. One reason for that: Once you look beyond the immediate future, optimism fades and it becomes clear that Americans remain deeply worried about their long-term economic prospects.

Consider: In the MONEY survey, nearly two-thirds of those earning less than $100,000 and roughly half of those making six figures said they were worried about their family’s economic security; roughly six in 10 Americans were anxious about how they would pay their health care costs.

The majority fell behind on their savings, given their stage of life, and almost three out of four were concerned that their money wouldn’t last through retirement. Other recent studies have found similar concerns: New research from the Consumer Federation of America, for instance, found that only a third of Americans feel prepared for their long-term financial future.

Why does the outlook seem so scary? Some experts think the events of the past six years have shaken the belief in our ability to accumulate wealth over the long haul.

“When the housing market fell, that really scared people,” says Michael Hurd, a senior researcher at Rand, who studied the effect of the recession on household finances. Hurd found that a decline in home values caused people to cut back on their spending more than a similar drop in the stock market.

In addition, the erosion of trust in our financial system will have a lasting effect, says Tyler Cowen, professor of economics at George Mason University.

“If you don’t believe that your environment will persist, you’re not willing to stake out plans,” Cowen notes. “For example, you won’t buy a home based on the premise that in five years you’ll be earning more money. The volatility of the stock market and the government shutdown have only made it harder.”

Speech pathologist Janel Butera, 47, is one who isn’t counting on anything. A divorced mom of two sons, ages 12 and 13, from Corona, Calif., Butera has made reducing spending and boosting savings a priority over the past five years. Out went the gym membership and vacations; packed lunches and day trips to the beach are the new norm.

“The economy as a whole — I don’t put a lot of faith in it,” she says. “I’m not counting on getting any retirement help, not even Social Security.”

Butera is proud that she’s managed to rebuild her finances after suffering the twin hits of divorce and the recession but is still anxious that she might one day become a burden to her boys. “I worry about them having to provide for me when I’m older,” she says.

Her concern is shared by many: In the MONEY poll, one in five Americans with children said they would probably need their kids’ financial support someday.

We’re living close to the edge

One reason we’re not feeling so hot: While our 401(k)s may be flush again, our emergency savings are not. Half of the respondents in the MONEY poll confessed to living paycheck to paycheck; roughly six in 10 felt they didn’t have enough money set aside for emergencies and didn’t think the family’s breadwinner would find it easy to get another job if laid off.

And almost all people, it seemed, felt like they’d need a higher income than they now earn to really be financially secure — even those who currently bring home a six-figure income. No wonder that anxiety about how we’d cope with a real financial emergency tied with concerns about outliving retirement savings as the most prevalent money worry.

In fact, money has gotten tighter for many lately. Household income, adjusted for inflation, has dipped 4.7% since the recession, economist Cowen points out.

One thing’s for sure: All this stress isn’t helping our love life. The MONEY poll found that finances are both the most frequent source of spats between couples and the cause of the most serious arguments — far ahead of the second-place finisher, household chores, and snoring, which came in third.

Edward Martinez of Tyler, Texas, is one of the many who are worried about not having an adequate cushion. Though Martinez, 44, made $140,000 working for a military contractor in Iraq after the recession, he now earns less than six figures as a technical specialist with the Smith County appraisal district.

He and his wife, Jennifer, 38, a professor at the University of Texas, have an 18-year-old daughter living at home and also help support Martinez’s 22-year-old daughter from his first marriage.

Right now the family has only about a month’s worth of savings, which could easily be wiped out by a run-of-the-mill financial emergency, Martinez acknowledges. He’s in the process of getting a pharmaceutical degree, which he hopes will boost his earning power a few years from now.

Like Martinez, many parents these days are helping grown kids, making it even harder to save. More than a third of the parents of children 22 and older in the MONEY survey are helping out at least one of their brood; of those, three in 10 are shelling out $5,000 or more a year. And that’s not likely to change anytime soon: In the survey, parents providing such support believed their adult child wouldn’t gain full independence until age 30; adult kids supported by a parent put that age at (gulp) 32.

The kids may be all right in the end after all

Such findings are in keeping with alarms many experts have sounded predicting that young adults would bear the most lasting scars from the Great Recession, just as the Depression had a lifelong impact on the way people who came of age at that time managed their money.

Certainly millennials have had a tough slog so far: The job market for this youngest generation of workers is grim (nearly half of those unemployed are under 34, a Demos study has found), and the average student-loan debt for recent college grads is $30,000.

Atlanta resident Courtney Clemons, 25, has a typical millennial story. The Georgia State University grad interned at a travel agency while in school and was hired there full-time after she got her degree. But her earnings, ranging from $25,000 to $35,000, depending on bonuses, aren’t enough for her to get by on her own. So her parents provide about $500 a month to cover her car and health insurance, cellphone bill, and some spending money. Contributing to the problem: She has $90,000 in student loans.

“The jobs you get after graduation aren’t conducive to living on your own,” she says. Morley Winograd, co-author of Millennial Momentum: How a New Generation Is Remaking America, agrees. “Millennials are a very economically stressed generation, and that stress will last for their lifetime,” he says.

Yet MONEY’s survey, among others, shows a more mixed picture. Today’s younger folks do seem at least as value-conscious as their elders, and maybe even more so: A greater percentage of millennials say they are eating at home these days than they were in 2011, for example, while the numbers had dropped slightly for the general population. And for now at least, younger investors also seem more nervous about the stock market, keeping a greater percentage of their portfolios in cash than older people do.

When it comes to other attitudes about spending and saving, however, millennials seem to be pretty much like everyone else. They are just as likely to covet new, innovative products. And they aren’t cutting back on luxury spending or postponing vacations with any greater frequency than their elders either. Nor do they place more importance on saving; almost everyone, young and old, affluent or not, says that saving money is more important to them now than it was a few years ago. And for all the lamentation about how dim the prospects are for this generation, younger folks are surprisingly upbeat about their future: The vast majority (86%) expect to live as well as or better than their parents.

For now, though, while millennials may be having difficulty leaving the nest, no one seems particularly unhappy about it.

“Boomers created a helicopter parenting style and went out of their way to be friends with their kids,” says Winograd. “Many are delighted to have their adult children home.” The kids apparently don’t mind either. A recent Pew study found that 78% of adults ages 25 to 34 who were staying with their parents said they were satisfied with their living arrangements.

Some experts believe this turn toward family may be one recession-induced change that truly lasts. Reality is causing more people to let go of the postwar expectation that living standards will naturally just keep getting better, says Stephanie Coontz, a professor of history and family studies at Evergreen State College in Olympia, Wash.

Many may end up caring less about keeping up with the Joneses and more about being with the people who matter the most to them as a result. And indeed, almost 80% of the respondents to the MONEY survey say spending time with family is more important than ever to them, an increase of 10 percentage points over the past five years.

Janel Butera is one of them. The speech pathologist and mom felt her financial situation was secure enough last year to cut back her workweek from five days to four, so she went for it. “Sure, I could use the money,” she says, “but spending time with my kids is more important.”

Additional reporting by Kerri Anne Renzulli.

 

TIME Economy

Report: Low-Pay Jobs Replace High-Pay Jobs Since Recession

A diner sits next to a help wanted sign at a McDonalds restaurant in the Brooklyn borough of New York, on March 7, 2014.
A diner sits next to a help wanted sign at a McDonalds restaurant in the Brooklyn borough of New York, on March 7, 2014. Keith Bedford—Reuters

A new report by the National Employment Law Project finds that unsteady economic recovery has been powered by the replacement of high-earning jobs lost in the recession with low-paying positions in the service industry

Even as the economy has slowly emerged from the worst downturn since the Great Depression, job growth since 2008 has come predominantly in the form of low-wage service industry jobs replacing high-earning jobs lost in the recession, according to a new report.

Although employment rates have roughly reached pre-recession levels, most of the jobs gained since 2008 have been in lower-wage industries, according to a report from the National Employment Law Project. Lower-wage industries accounted for 22% of recession job losses, but are responsible for 44% of the hiring in the recovery. There are now almost two million more low-wage workers than there were at the start of the recession, according to the report.

High-wage jobs accounted for 41% of job losses but have only grown 30% since the recession, and mid-wage jobs made up 37% of job losses but only 26% of recent employment growth. That means there are almost two million fewer high- and mid-wage jobs than there were before the 2008 collapse, according to the report.

After 49 consecutive months of jobs growth, employment levels are roughly back to where they were before the collapse. The growth in low-wage jobs has been powered in part by retail and by the food and beverage industry.

The report focused on the private sector, but local government employment has declined by 627,000 jobs since the recession, with 44% of those losses taken from local education.

TIME Greece

Tech Start-Ups Bloom in Recession-Hit Greece

The Greek economy is reeling from six years of recession, with youth unemployment around 60 percent, but a new wave of startups could be just the thing to turn the economy around

A year ago, when Greek start-up Workable had secured their initial funding deal, the company’s headquarters consisted of six guys – including the two founders, Nikos Moraitakis and Spyros Magiatis – in three barely furnished rooms. These days, 16 of Workable’s 18 employees fill a grander, yet still conspicuously relaxed office space on two floors in the plush Athenian district of Psychico. The new office has lofty views, an abundance of couches and beanbags. People walk around in flip-flops or bare feet. The company, which offers business clients user-friendly software to facilitate the hiring process, recently opened satellite offices in London and Portland, Oregon, and has just announced a $1.5 million funding round led by the venture capital fund Greylock IL.

For a Greek economy reeling from six years of recession, start-ups like Workable may offer hope for the future. The prospects of employment in government or with an established company have become less appealing and less likely for the droves of well-educated IT engineers produced by Greece’s universities. Unemployment in Greece stands at 27.5 percent, and youth unemployment has hovered around 60 percent for months. The country’s start-up sector is small, far too small to make a dent in the staggering joblessness numbers, but it is growing rapidly.

The turning point was the creation of four EU-backed venture capital funds in December 2012 that specifically target technology start-ups in Greece. Workable’s initial funding round came largely from one of these, JEREMIE-Openfund II, which has 11 million euros under management (70 percent from the EU), and which has already funded eight Greek start-ups in as many months. Aristos Doxiadis, an economist and a general partner at the fund, said its initial target was to invest in 25-30 companies by the end of 2015, which he feared might prove too ambitious, but is now well on track to being met. The three other funds are larger, managing between 17 and 30 million euros. The evolution has not been without its growing pains – among them a dearth of experienced investors – but in the past year, start-up growth has outpaced expectations.

Now, the highest-flying among Greece’s start-ups are already spreading beyond the local scene, led by deals like Workable’s funding round from Greylock. “It is certainly a boost for the local start-up ecosystem,” says Moraitakis, Workable’s 36-year old CEO, who has a degree in Software Engineering from Imperial College in London. Along with co-founder Magiatis, he previously worked at Upstream, a Greek mobile marketing company that serves operators in more than 40 markets.

The Greylock deal is the latest in a series of international successes for Greek start-ups. Last September, US-based software Company Splunk acquired Bug Sense, a mobile app analytics company. Taxibeat, a digital taxi-hailing application, secured $4 million in funding led by the European fund Hummingbird Ventures. “It’s not that big investors will suddenly put money in other Greek tech companies just because they come from the same place we do,” Moraitakis explains. “But it will help open doors for them.”

In fact, the deal already seems to have had a ripple effect. “After it was made public, a number of big players on the European venture capital circuit began asking us what other promising companies we can tell them about,” says Doxiadis of Openfund II, which also contributed to Workable’s current round of funding. Greylock IL, an affiliate of Silicon Valley-based Greylock Partners – one of the biggest venture capital firms in the world with over $2 billion under management, and among the most discerning investors in the new digital economy – has backed companies such as Facebook, LinkedIn and Dropbox. Its portfolio consists of 30 Israeli firms and only 9 European companies, including Workable.

Workable was founded in June 2012, a few days before the critical, repeat parliamentary elections in Greece that many thought would lead to its exit from the euro. Moraitakis came home to Athens from Dubai, where we has working for Upstream, just as the election campaign for the initial May poll was getting under way. His friends thought he was crazy. These days, having bucked the emigration trend, he is busy trying to engineer what he calls a “reverse brain drain” – bringing other talented Greeks back to Athens.

The first meeting between Workable’s founders and Greylock took place in November 2012 in London, when the company was still at a very early stage of development. The fund kept its eye on Workable’s product development, in particular its suitability for small and medium-sized firms that do not have dedicated HR departments. They saw the high rates of growth: in early 2014, the month-on-month increase in clients has reached 30%. That performance prompted investment despite Greece’s less than stellar reputation as a place to do business.

Greece’s economy is still very troubled; however, the ingredients are there for a startup that may turn out to be a world beater, and venture capitalists are taking notice. “We feel there are benefits to Greece,” says Tilly Kalisky, associate partner at Greylock IL. “There is qualified engineering talent at competitive costs compared to European and US equivalents. We feel that excellent entrepreneurs and companies can be created from anywhere.”

TIME Employment

Spain Created Jobs!

SPAIN-ECONOMY-UNEMPLOYMENT-INDICATOR
A municipal worker cleans the ground as people walk outside a government employment office in Madrid on January 23, 2014. GERARD JULIEN / AFP / Getty Images

After 68 months of losses, that's reason to celebrate

The last time Spain posted positive job numbers, it was 2008 and Miley Cyrus was still fully clothed on the Disney Channel.

Finally, after 68 consecutive months of losses and stagnation, the number of employed Spaniards rose to 16.2 million in February, 60,000 higher than the same month last year, according to the Financial Times. Madrid hailed the improvement as a sign of a greater recovery to come.

But the gains could be fleeting. The newspaper reports that only 9% of February’s job contracts were permanent offers, and the vast majority of recent hires were contract positions that do not bestow the pension and related benefits of full-time employment.

[FT]

TIME

Sbarro Prepares a Fresh Slice of Bankruptcy Filings

Sbarro Restaurant Chain Files For Chapter 11 Bankruptcy Protection
Customers order lunch at a Sbarro restaurant on April 4, 2011 in Chicago, Illinois. Scott Olson / Getty Images

Sprinkle 400 pizza joints across a generous helping of malls, mix in a recession, and you have a recipe for Chapter 11

Roughly two years after Sbarro LLC managed to claw its way out of bankruptcy, the ailing pizza chain is reportedly serving up a fresh slice of Chapter 11 filings.

The Wall Street Journal reports that Sbarro is gathering votes on a restructuring plan that could have the company filing for Chapter 11 protections as early as Sunday. Sales at its restaurants took a hit after the 2008 recession, as foot traffic in its favored habitat, the mall food court, dropped off precipitously.

Sbarro managed to shake off some debts through tweaked recipes, fresher ingredients and closures at hundreds of struggling locations, but the Journal reports that the streamlined firm is still roughly $140 million in the red, a burden that’s just waiting to be sliced, again.

[WSJ]

TIME global economy

Global Investors Got High on Emerging Markets: Now for the Comedown

Pedestrians walk past a Citibank branch in Mumbai Dhiraj Singh / Bloomberg / Getty Images

The world is now paying the price for irrational exuberance over developing economies

You’d think that the world’s investors would be in good spirits right now. The U.S. economy finally appears to be recovering. Japan may be stirring back to life. Both the IMF and World Bank recently upgraded their projections for global growth. But as we get started on 2014, financial markets are in turmoil. Emerging markets from Argentina to Turkey to South Africa are seeing their currencies get slammed as investors flee. The jitters ricocheted to the U.S. last week, pummeling stocks in New York City. What in the world is going on?

Call it coming down off an emerging-markets high. During the Great Recession, when the U.S. and Europe became crushed under debt, joblessness and recession, the developing world appeared to be the future of the global economy. Growth in countries like China, India, Brazil and Indonesia shrugged off the woes of the West and supported the world economy through this toughest of times. Money flowed generously into many of these markets as a result, especially since anxious central banks in the U.S., Europe and Japan flooded their economies with liberal amounts of cash to prevent an even worse downturn. What’s happening now is that global investors are starting to realize the developing world has its own issues, and that it hasn’t detached itself from the West’s problems either. Simply, we’re waking up to the fact that many of the most promising emerging markets are facing difficulties that dim their prospects. The bubble of exuberance that has surrounded the developing world is bursting.

Take a look at China. Though its GDP growth, at 7.7% in 2013, is nothing to sniff at, it is far cry from the double-digit expansion that had been so common, and many economists believe growth will slow further. That’s because its current, investment-obsessed growth model is sputtering and the leadership in Beijing is embarking on a major reform effort to build a new foundation for future success. In fact, a good part of the strong performance China experienced during the downturn was due to a massive surge of credit that has left China burdened with lofty levels of debt. That expansion fueled consumption of everything from iron ore to Prada handbags, but it wasn’t sustainable. Now that Beijing is trying to cool things down, countries that export a lot to China, like Brazil, could see a knock-on effect to their growth as well. Despite warnings from many economists that this was coming, investors only now seem to be adjusting their thinking to a world with a slower China, and that’s affecting their sentiments towards other emerging economies.

(MORE: China’s Economy Is Slowing, and We Should All Be Thankful)

Investors are also coming to realize that many developing nations are facing political pressures that are dragging on growth. India, plagued by political gridlock and distracted by upcoming elections, has allowed the free-market reform that has been driving growth to stall. In Thailand, an ongoing political contest between the ruling party and its opponents is weighing heavily on the economy.

Still other problems have been exacerbated by the global downturn itself. All the cheap dollars spilled out by the U.S. Federal Reserve in its efforts to stimulate the American economy has made it easy for countries like Turkey and India to finance consumption and, in essence, live beyond their means. The fear is that as the Fed scales back that largesse, these countries will have a harder time getting cheap money, and that will drag on their economies. Some companies in emerging markets like Indonesia built up significant amounts of dollar debt that now could become more expensive to service. Those jitters are causing some investors to get out of some of these markets before matters get worse. Perhaps these fears will prove unfounded, but since the cash-creating programs of the world’s major central banks are so unprecedented, the impact of winding them down is uncertain as well.

This isn’t to say that all emerging markets are disasters. The IMF expects Nigeria to grow at a very China-like 7.4% this year, while the Philippines remains surprisingly buoyant. “The real lesson from recent events is that the need for investors to discriminate between individual [emerging markets] has never been greater,” noted research firm Capital Economics in a recent note. Still, while we detox, expect a bumpy ride.

MORE: The BRICs Have Hit a Wall

TIME Jobs

Why Today’s Miserable Job Numbers Are Probably Wrong

Views From A Job Fair As U.S. Added 238,000 Jobs In December
Prospective job applicants wait in line to learn about job openings at the Kentucky Kingdom Amusement Park during a job fair at the nearby Crowne Plaza Hotel in Louisville, Ky., Jan. 4, 2013. Luke Sharett / Bloomberg / Getty Images

The underwhelming 74,000 jobs added in December dampens any notion of recovery, but the government will likely revise the tally in coming days, writes Bill Saporito. The total differs from a privately funded report issued last week

The best thing you can say about today’s dismal job numbers is that they’re likely wrong. “This would be really bad news if it was true,” says professor Peter Cappelli, director of the Wharton School’s Center for Human Resources. The underwhelming 74,000 increase in non-farm payrolls suggest that the idea the economy was gaining momentum just got coldcocked by bad weather and weak spending.

Then again, consider that the November jobs report was revised upward to 241,000 from 203,000; the October report was upwardly revised to more than 200,000 new jobs too. The U.S., on average, has been adding about 180,000 jobs a month as it tries to fill the 8 million job hole created by the Great Recession. Just to keep pace with population growth we need to add 143,000 jobs monthly, so the 74,000 figure, if it stands, is actually a move backward.

Yes, you can blame the weather for some of this. According to BNP Paribas analyst Julia Coronado, our horrible winter could have whited out 75,000 jobs, as employment was lost in construction, tourism and transportation.

Along with weak job growth, the other perplexing number in the December report is the drop in unemployment, down to 6.7% from November’s 7%. That’s the lowest the jobless rate has reached since November 2008. But the lower number is problematic too because it signals that more people haven given up looking for work. “If the unemployment rate is falling and job growth is less than population growth, the only way that can happen is that lots of people have given up,” says Cappelli.

You can see that in the labor participation rate, which dropped to 62.8% from 63%–that’s the lowest level since February 1978, says National Association of Manufacturers chief economist Chad Moutray. It’s not unusual for people looking for full-time work to drop out in December, says Cappelli, since they figure that many companies are only hiring for temporary work at that time of the year. But it’s hardly encouraging and more men have thrown in the towel than women. For them, the so-called ‘he’-cession continues.

The jarring data also gets thrown into the mixer as the Fed gets ready to taper its bond buying program by $10 billion to $75 billion a month. Coronado points out that average hourly earnings grew a mere 0.1%, which dents purchasing power. Since the economy is nearly 70% consumer-based, that’s a sign of weakness. “This report certainly adds fuel to the fiery debate on whether low inflation is likely to continue or is sending a signal about the underlying strength of the economy,” she says.

So why are the data wrong? The government report contrasts sharply with payroll company ADP, which recently reported that private businesses added 238,000 jobs in December. It’s a matter of money, says Cappelli. The Bureau of Labor Statistics employment data is gathered through a survey, and the agency doesn’t or can’t spend the money needed to expand the design’s sample size enough to make the result more reliable. So the numbers are instead revised later when better data becomes available. Maybe BLS needs to hire a couple of people to improve the product.

MONEY

5 years later: Lessons from the crash

Lehman Brothers’ collapse in September 2008 sent stocks on a terrifying ride. A year-by-year look back reveals five key takeaways you need to heed today.

  • Lehman Brothers implodes

    Five years ago, you witnessed the worst panic unfold on Wall Street since the Great Depression.

    As home prices fell and mortgage-backed securities soured, the pillars of the nation’s financial system — from investment banks led by Lehman Brothers to thrifts such as Washington Mutual to the insurer AIG to mortgage giants Fannie Mae and Freddie Mac — toppled like dominoes.

    Among the eventual losses: 5,000 points on the Dow Jones industrial average, $7 trillion in wealth, and, of course, your faith in the financial system.

    Fast-forward to the present, and the Dow has returned to pre-crisis levels and is back to setting new highs.

    As you look at the key events that transpired since Lehman’s collapse, you’ll find lessons big and small that are as relevant as ever. It turns out that for better or worse, things haven’t changed nearly as much since the crisis as you might have expected.

    On the slides that follow is a year-by-year look at key events in the financial crisis, with the main lesson to take from each of them.

    Related: What’s your money state of mind?

  • Lesson 1: Don’t bank on one sector

    September 15, 2008: The turmoil after Lehman’s collapse was different — and more frightening — than the tech crash in 2000.

    This time the stocks that took the biggest hits weren’t shares of profitless startups. They were financial titans — some more than a century old — that produced a third of the market’s profits and dividends. No wonder these blue chips were fixtures in many retirement portfolios.

    The love affair is clearly over. Or is it? Financials have been the market’s best performers since September 2011, posting annualized gains of 39%.

    As a result, bank stocks, which made up less than 9% of the S&P 500 in 2009, based on total stock market value, now represent more than 17% of the broad market. That means they’re probably among the biggest holdings in your stock mutual funds and ETFs.

    To limit further exposure, stick with funds that focus on pristine balance sheets and consistent earnings, such as MONEY 50 fund Jensen Quality Growth JENSEN PORTFOLIO I JENSEN QALITY GROWTH FD I JENIX 1.1646% , where financials make up less than 4% of assets.

    More takeaways from 2008

    October 16: In a month when investors yank $71 billion from equity funds, Warren Buffett says buy U.S. stocks.The moral: You have to be willing to go against the crowd, and fund flows are a good contrarian indicator.

    December 11: Bernard Madoff is arrested in largest Ponzi scheme and financial fraud ever. The moral: Investments that seem too good to be true are. Madoff also demonstrated the risk of letting a single fund manager or financial adviser oversee your entire portfolio.

    Related: Millennials Have No Idea Who Bernie Madoff Was

  • Lesson 2: Buy and hold works – eventually

    March 9, 2009: When the Dow fell to 6547 that day, stocks had already lost more than half their value. And equities wouldn’t fully recover until 2013. So it may seem that investors who pulled $25 billion out of stock funds in March and $240 billion — plowing that money into bonds — over the next three years were on the right track. They weren’t.

    March 2009 marked the start of a bull market that saw stocks return 174% so far, vs. 25% for bonds.

    Had you simply hung on to a basic 70% equity/30% bond strategy from Sept. 1, 2008 — when things started to get scary — you’d have earned more than 7.5% a year. That’s not far off the 9% historical annual return for this mix over five-year stretches since 1926. Of course, you’d have earned that only by staying the course.

    More takeaways from 2009

    March 31: The price/earnings ratio for stocks, based on 10 years of averaged profits, falls to a generation-low 13.3. The moral: The price you pay for stocks is the single biggest determinant of future returns. Since March 2009, the S&P 500 has gained 22% annually.

    October: U.S. unemployment rate peaks at 10%.The moral: Emergencies don’t happen just to other people. Set aside six months of expenses in cash — a year’s worth if you’re over 50, as your job hunt will take longer than a 30-year-old’s.

  • Lesson 3: Reaching for yield can fail

    January 11, 2010: When stocks fall, the stability of cash can cushion the blow. Yet things don’t necessarily work out that way.

    Just ask shareholders of Schwab YieldPlus. This so-called ultrashort bond fund — which was marketed as a cash alternative, though it really wasn’t one — fell 35% in 2008 when the mortgage securities that provided the “plus” in the fund’s name turned out to be riskier than thought. (Schwab settled the charges in January 2011 but did not admit wrongdoing.)

    Before that, there was the Reserve Fund, the first money fund in 14 years to lose value in part because it tried to boost payouts by holding some Lehman debt.

    It makes no sense to take risks with your rainy-day savings, a lesson that’s worth remembering today. Since early 2009, investors have poured $73 billion into floating-rate bond funds, which buy short bank loans that offer higher payouts than basic cash. And $33 billion has gone back into ultrashort bond funds.

    More takeaways from 2010

    May 6:The Dow mysteriously drops 1,000 points in a “flash crash” blamed on computer trading models. The moral: Rapid-fire programmed trading is yet another reason individuals should just stick with buy and hold.

    December 31: Fidelity reports average 401(k) balances have recovered from the financial crisis. The moral: Between December 2007 and December 2010, 401(k) balances rose about 1% annually, while stocks lost close to 3% a year — proving that saving is your most reliable retirement planning tool.

    Related: How much do I need to retire?

  • Lesson 4: Diversification works

    In 2008, only one type of diversification seemed to pan out: your basic mix of stocks and bonds. Among equities, everything pretty much fell in lockstep.

    February 2012: Fast-forward more than three years, when the financial crisis unfolded in a different guise — this time with the debt crisis in Europe. Fear of government defaults peaked in early 2012, with rates on Greek debt reaching 29%.

    Diversification worked here, too, but also in a different guise.

    While conventional wisdom said investors should flee the continent, European shares wound up beating the world in 2012, returning 20.3%. The year before that, it was U.S. stocks that performed the best (despite Uncle Sam’s fiscal woes). And so far in 2013, Japan is leading, despite having just been in another recession.

    Spreading your bets globally eventually pays off, especially given how mercurial equities can be. For investors who are hearing that the U.S. looks like the only promising market these days, this is a clear lesson to heed.

    More takeaways from 2011-2012

    August 5, 2011: In response to the budget stalemate, S&P strips the U.S. of its AAA credit rating. Ironically, Treasuries post their best week in two years. The moral: U.S. debt remains the world’s safe-haven investment of choice, despite Uncle Sam’s fiscal troubles.

    January 31, 2012: Spurred by anemic bond yields, investors pour money into dividend funds, leading to worries of a “dividend bubble.” The moral: While this fear is overblown, it’s a useful reminder that no matter how appealing income-paying shares are, they’re far riskier than bonds.

MONEY

Market Timing: Not a Good Retirement Strategy

I’ve been working for five years now and save religiously for retirement. But I feel that I’ve begun investing at a bad time for the markets. Most of all I worry about what will happen to my 401(k) if the market tanks again. Am I right to be concerned? — Aaron, Nashville, Tenn.

It would be nice if I could assure you that the market gyrations that have spooked investors recently and over the past dozen years — i.e., stock prices dropping by 50% or more in 2000 and 2007 — aren’t likely to occur again. But I can’t do that.

If anything, recent research shows that these sorts of gut-wrenching episodes — while not exactly the norm — are likely to occur more frequently than we previously believed. So I can virtually assure you that over the course of your career, the market will tank many times.

But I don’t think that’s something you should worry about when you’re investing for retirement. Investors have gone through many tough times before.

Since 1929, we’ve had 14 recessions and 13 bear markets, an average of about one of each every six or so years. And each time stock prices eventually recovered from these setbacks and climbed to new highs. I see no reason for that dynamic to change.

Besides, as counterintuitive as it may seem, you may actually be better off starting to invest in a lousy market if you’re just beginning to save for a retirement that’s many years down the road.

Related: What is an index fund?

A T. Rowe Price study from a few years ago examined how four hypothetical retirement investors who put their savings into a diversified portfolio of stocks would have fared over four different 30-year periods depending on whether they began investing on the eve of a bull market or a bear market.

I’ll spare you the details, but the upshot is that the investors who got their start in a bear market accumulated more than twice as much in savings as those who began investing on the verge of a bull. The reason: the shares that investors acquired at depressed prices during a setback soared in value as the market rebounded, significantly boosting the eventual size of their nest egg.

Of course, neither you nor I really know whether this is, as you fear, “a bad time for the markets.” Bear and bull markets are easy to identify in hindsight, but difficult to impossible to predict in advance. If that weren’t the case, everyone would get out of the market just before it drops precipitously and jump back in just as prices are rebounding.

So it makes little sense to try to time your retirement saving and investing based on what you think the market may or may not do. The most you can do is play the cards you’re dealt as best you can.

As a practical matter, that means investing most of your retirement savings — say, 70% to 90% — in stocks at the beginning of your career when you have plenty of time to recover from those inevitable market downturns. As you get older, you can begin shifting more of your savings to bonds.

You can expand beyond a simple stocks-bonds portfolio if you like. But don’t feel you have to load up on all the gimmicky little niche investments Wall Street’s marketing machine churns out. In general, a simpler mix is better.

Related: What is the right mix of stocks and bonds for me?

By the time you’re ready to retire — and more interested in protecting your nest egg than growing it — you probably want to have roughly 50% of your savings in stocks and 50% in bonds. For a guide of how to achieve this transition, you can check out the “glide path” of a target-date retirement fund. After you’ve retired, you can then shift your focus on the best way to turn your savings into retirement income.

But however worrisome you may feel the outlook for the economy and the markets may seem today, what with the constant talk of the fiscal cliff at home and the debt crisis abroad, you would be making a big mistake if you let your anxiety sidetrack you from continuing to save diligently for retirement and putting 401(k) money into the investment that’s generated the highest long-term returns in the past and is likely to do so in the future — stocks.

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