I have had some friends and colleagues ask me my thought on the economy right now. So, instead of repeating myself many times, I’ll just post it here…
First and foremost, as of the last report of economic indicators, the U. S. is NOT in a recession. An economic recession by definition is when the economy shrinks and to date is has not done that, in fact, the economy is still growing. I will acknowledge, however, that the economy has slowed down and it shaky, but it has not recessed.
Second, I am not a fan of this government bailout. I applaud the House of Representatives for voting it down the other day. This bailout, if you didn’t know, in part is to help financial institutions who wrote sub-prime mortgages. Let’s talk about that for a minute, sub-prime mortgages have to be the stupidest thing that was ever created. Why would any bank loan money to people to buy a house when they couldn’t qualify for a traditional mortgage in the first place? (GREED) Or loan people more than their house was worth? (GREED) Or worse yet, offer an A.R.M. (Adjustable Rate Mortgage) so that Dick and Jane can get into their “dream house” only to have it become a nightmare with the rate “adjusts” and they can no longer afford the payment? (GREED) These financial institutions were booking income at the expense of those who thought they were “entitled.”
Back to this bailout… my opinion is this, let these institutions fail (if they can’t manage finances better than they are, I really don’t want them anywhere close to my money). The message this bailout sends is that it’s OK to screw over the populous and get rich, because the government will bail us out when it goes south. NOT WITH MY TAX MONEY
Then the question about the stock market crashing, my answer is let it. Did you know that since 1950 there have been nine market adjustments where the S&P 500 has declined at least 20%? And EACH and EVERY time the market comes back, it comes back better and stronger. The last adjustment was 2001 – 2003, when the S & P 500 fell 49%. And guess what? Last time I checked the S & P had recovered and was higher than ever. This is what is called an economic cycle. Face it, this is going to happen, always has, always will.
Now the question is what will you do? You have three options, you can be Chicken Little and say the sky is falling and stop investing (IRA, 401(k), brokerage accounts…) and bail; you can do nothing and leave everything alone, or you can increase your investing. My personal choice is to invest more. Why? I’ll tell you why, because stocks, mutual funds, and securities are now on sale! So you could say I’m stocking up. It goes back to grandma’s financial advice “buy low, sell high.” NOW IS THE TIME TO BUY
And yes my 401(k)’s value is down about 25% percent and it does make me go YIKES! But I haven’t lost one dime… and that is because I have not cashed it out. But what is happening that I do like is that my quantity of shares is getting larger and larger every two weeks.
Like I said before, this is an economic cycle, they happen, and it’s not the time to be afraid, it’s time to be aggressive. When after all this has settled down and the market has quit throwing a hissy fit, you will see a better and stronger economy and investment accounts that are fat!
