Preaching Fear or Preaching Ignorance
It is widely known that the U.S. economy is experiencing the longest economic expansion in history. This has provided many individuals, families, and businesses time to recoup their losses from the last recession and make some serious headway.
When experiencing strong markets, ample job opportunities, rising home values, and competitive wages, it is easy to forget the past. The "spend what you make" mindset is rampant in our country today and it seems no one is preparing for the end of this expansion.
There are plenty of people out there who are well aware that an end must come to this expansion; most of them either preach fear or ignorance. Those preaching fear advise people to pull out of investments and stockpile a hefty cash safety net or to invest only in highly conservative funds. They tell you to stay in the job you hate, barely getting by, because you will need that security when the economy collapses under us all.
In contrast, those who preach ignorance are happy to turn a blind eye and pretend that our booming economy will continue for the foreseeable future. Every dime they earn is spent before their paycheck hits their account. They decide what they can afford based on the monthly payment and often justify large purchases by saying "Sure, I can afford it! I will only have to work a few more hours each week to make the payment".
The fact is, markets have always come in waves. If we are experiencing a boom, a recession is just around the corner. If we are experiencing a recession, a boom is just around the corner. That is how it has been for a very long time and there are no signs of and end to the cycle anytime soon. With that in mind, the fact that we are in the longest economic expansion period in U.S. history should be an indication that a recession is in our future—possibly our near future.
So what do we do then? Panic? Pull out of all our investments? Continue on, business as usual? Enjoy today at the expense of tomorrow?
I have a better idea: prepare for the 7 years of famine.
Ignore, Panic, or Prepare
There is a story in the Bible of a prominent official in Egypt named Joseph. It’s an amazing rags-to-riches story and holds numerous lessons but I am going to focus on a very small part of it. At one time, Joseph helps predict a strange 14 year period: 7 years of bountiful harvest followed by 7 years of famine.
When Joseph realized what was to come, he didn't say "Well, I guess we should enjoy the food while we have it! Try not to think of the 7 year famine that's coming. Just focus on the coming bumper crops!"
He also didn't say "There's a famine coming! We aren't going to be able to grow crops and our livestock won't be able to feed. Lets sell all our land, livestock, and equipment and stockpile gold and silver so we can buy food during the 7 years of famine!"
Instead, he recommended saving some of the grain they harvest during the first 7 years to offset the lack of food in the famine. Instead of eating it all during the boom, or panicking and only focusing on the 7 year famine without regard to the 7 years of bounty or the years to follow the famine, he decided to use the excess in the first seven to benefit Egypt in the next. And, in the end, his plan worked. Not only was Egypt fed during the famine, but they also sold grain to surrounding areas and likely made a decent profit.
In the same way, I advise everyone to enjoy today but also remember that a market downturn will occur eventually. Don't pull out all of your investments and stockpile cash. Don't embrace unchecked spending, living only for today, either. Instead, live on less than you make and save a healthy amount of money every month. Little by little you will accrue enough to help you through tough times. You will have the resources to not only survive during a recession but to thrive.
Just as Egypt was able to sell grain to surrounding communities (which saved the communities while simultaneously benefiting Egypt) you may be able to take advantage of the opportunities presented by recessions. You may purchase cheaper stocks or benefit from lower housing costs. If you have employees, you will be able to provide stable jobs and career growth to your employees while other companies are laying people off.
Bottom line: Change is coming. Don't ignore it. Don't panic. Just prepare for it.
Lance A. La Croix