Recessions have always been around, and are normal part of the overall economic cycle. What must go up must come down. There will be times of economic expansion and then times of economic slowdown. The news today is full of stories of the impending financial crisis and recession. Whether it’s on the actual news on TV, or on the Internet or even Facebook, it’s all around us. “Billionaire encourages selling all stocks” or “Financial genius who predicted 2008 has big thoughts for this year”. Sadly the news right now is all about getting clicks and big headlines like that get a lot of clicks. For young professionals, we really shouldn’t be worrying too much about a recession and fretting about a crash. We have a lot on our plate to begin with and worrying about the overall economy is a lot. Here are a few reasons why I think you should shut off the news and focus on your life instead.
As a whole we have more ups than downs
Modern history, going back to the early 1900’s, has seen ups and downs in the financial market. There’ve been big crashes like the Great Depression or 2008, as well as smaller dips too. There’ve also been periods of big gains. If you take a look at the Dow Jones Industrial Average (a good barometer for the overall market), you see that over time, it’s been an upward trend.
So, as tough as the Great Depression and 2008 was, it all has come back with time. So, don’t worry about the economy collapsing tomorrow, and instead know that the economy has always bounced back and investors re-earned any money they lost.
Timing takes getting lucky twice
A lot of people fretting about the ups and downs of the market try to sell the stocks before the crash and buy back once the crash is over. In theory this would work, buy low, sell high, but timing to sell when it’s at it’s highest and buy when it’s at it’s lowest is easier said than done. Timing the market essentially forces you to get lucky, twice. Once getting lucky to sell at the high point, and another time to get lucky to buy when it’s low. Even the so-called experts can’t predict how long a recession or expansion will take.
You’re much better off (in my opinion) keeping your money in the market and riding it out. As seen in the graph, it always has bounced back and you earned back any money you lost, plus more!
A mattress pays no interest
As tempting as it is to pull all our money out at the first sign of a recession, it probably isn’t the best strategy as discussed in the first two paragraphs. Some young professionals avoid the market all together, and just keep their money in cash. This isn’t a great idea either, as money under a figurative or literal mattress earns no money, and will technically lose money with inflation. As painful as it is to watch your investment lose market in a downturn, in the long-run they’re still doing better than money under a mattress!
Don’t pay too much attention to the nasty news cycle predicting imminent financial collapse. Keep your investment strategy consistent and constant and you’ll be able to weather any financial storms that come your way!