The economy has an impact on everyone’s life.
Whether it’s the higher cost of filling up your vehicle at the gas pump or watching the value of your 401k, we can all feel the effect. Dealing with it can be a little more palatable if we understand its history and how it works in our larger financial lives.
Consumers of the 1980s will remember that inflation was quite high. Interest rates on car loans and mortgages were in the teens and even in their twenties.
The prime rate, which is the rate banks charge their best customers, was in the teens. Inflation followed this trend and was also in the teens – over 13%.
Inflation has generally hovered around the 2.5% to 4% range for long periods. Prior to the recent rally in the US stock market over nearly a decade, our stock market averaged returns in the 8% to 10% range.
So the fact that we’ve had almost no inflation for a while, interest rates in the same range and a hot stock market indicates that it’s no surprise that things are balancing out to closer to historical trends.
One of the constants of the financial markets is that with each change, a large number of experts will say: “this time it is different”.
To some extent, that’s true.
Every situation is different. We are now in the information age and steam locomotives are not a driving force in our economy.
In the recession of the last decade, we didn’t have a superpower invading another sovereign nation, and there was no global pandemic.
But there are still fundamentals we might expect to play out, and we can be calm and proactive in reacting to economic conditions.
Low unemployment has led some consumers to complain about customer service in several areas.
While low unemployment rates are great for people who struggled to find work and make ends meet during the early stages of the pandemic, now is not the time to be part of the job performance problem. employee work.
Those who needed a break from entering the workforce now have a wonderful opportunity to prove themselves as conscientious employees. When the job market tightens, employees who have not been diligent in their work will be the first to go.
Much of what is needed to weather economic changes is not to make short-term moves that impact long-term conditions.
Two of these movements involve investments.
If the money is invested for the long term, taking that money out of the stock market could be a reckless move with long term impacts.
The same goes for making money available for emergencies in the stock market. Keep emergency money safe and liquid, which can seem boring.
And don’t let fear and uncertainty lead you to make decisions that will negatively impact your long-term nest egg.
Linda Leitz is a Certified Financial Planner. She can be contacted at [email protected]