As the US economy continues its steady recovery from the 08 crash, many people have started to worry about the next economic disaster. When will it happen?
To be honest no one, not even the Fed Chair or the Billionaire class, or economists know when a crash will occur. However, simply looking back at history, it wouldn’t be far fetched for a crash to happen sometime in the next few years.
Going back to our Nation’s founding, we’ve experienced all seasons of the economic cycle consistently over and over again. Some cycles have been longer than others, some have been more dramatic, and various sectors and asset classes have experienced the results at slightly different times. But we know a crash is coming – sometime.
The following are the four economic seasons and where we’re at right now:
Spring: A period of time in which business recovery increases, job growth rebounds, home foreclosures slow, and generally consumer confidence and credit stops diminishing.
Summer: A period of months or years in which the economy, stocks, real estate prices, and even consumer confidence grow. This period usually lasts the longest of the four seasons.
Autumn: The season in which consumers are overly, even extremely confident. Disposable incomes are rising, stocks are selling rapidly higher, and home mortgage applications continue to rise. At the end of Autumn a cooling in economic expansion begins. That’s when the temperature starts dropping…
Winter: This period is by far the most difficult on the average consumer and investor. Prices in real estate and stocks drop, consumer confidence plummets, credit dries up and the media starts panicking.
Which season are we in? While it’s difficult to say, we certainly aren’t in Spring or winter, which means we’re either in late summer or early autumn.
How do we deal with change? Is there a way to behave in each economic season?
The answer is that number one you shouldn’t behave in a groupthink mentality. Don’t follow the heard. In fact when everyone is behaving a certain way, consider doing the opposite. When everyone is selling stocks, consider buying. When people are retracting and reacting to the disaster, try to expand.
While this strategy isn’t best 100% of the time, even seeing things through this perspective can open your eyes to which actions are best to take.
Outside of being a contrarian, simply focusing on your life and less on the economy can go a long way. Just because “everyone” is getting laid-off at work that doesn’t mean you won’t find work. You might have to work extra hard, but try to get out of that mindset of thinking that what’s going on in the world has to be true for your life – it doesn’t.
The ultimate outcome of your financial life in both great and horrible times is up to you.