Another mental tool that can be very helpful is considering the potentially negative repercussions of being wrong. For instance, houses cost less than they have in recent history—likely close to a bottom—and borrowing burdens are lower than they have been for decades. So, I would argue it is a good time to buy a house if you can afford a 20% payment, and expect to stay in the home for five years or more. Even if prices do keep falling, there is no damage so long as you stay in the house and keep current on mortgage payments.
Finally, the long term trumps the short term, especially when financial assets are volatile. If you have read a magazine or watched television in the last couple of years, you know gold prices have shot to the moon. Specifically, over the last three years, gold has increased at a remarkable 29% per year. Many are suggesting you should hop on the bullion express. But wait: Over the past 25 years, the annual return for gold is just 6%, well below the 9% return on stocks for the same timeframe. And the price of gold can just sit there for very long periods without moving upward (which, coincidentally, is what gold itself does—it just sits there). Indeed, from March 1987 to May 2005 the return on gold was 0%.
These are just examples; they’re not meant to serve as the three key recommendations for the year. Rather they are meant to show how low-key, rational, well-informed thinking can help guide you on your path to financial independence. Ultimately the time-tested truisms of finance should serve as starting points no matter what year it is: spend less than you make; maximize your tax-advantaged investments over the long term; stay away from fads; and lean moderately against conventional wisdom rather than following the crowd. If you’re able to do these simple things, chances are you’ll create wealth more dependably than those who just listen to number-tossing experts at the beginning of the year.