Recessions are a little like people. Every one of them is different. Experts aren’t sure if our economy is going into a recession or not, but there have been signs of one peeking over the horizon for more than a year.
Sometimes, economies are hard to read, which is why so many people are waiting for an economic meltdown to come walking through the door.
But in the long-term, it doesn’t really matter whether a recession arrives because we all know that recessions come, and they go. And when they do show up, they usually don’t stay very long, so why would investors be moved by a brief downturn if they have a long-term plan?
One of the most common mistakes an investor can make is to leave the market in turbulent times. They want to hide their money in cash or money markets and sit on the sidelines until conditions improve.
Sure, there are plenty of things in our economy that concern us. Inflation, high interest rates, falling home prices, tight credit markets and geopolitical unrest are just a few of them. The headlines remind us of that every day, but there are reasons for optimism and in choppy seas, we can look to the horizon. And sometimes, that’s where we find good news.
Since March 2022, the Fed has been raising interest rates like Paul Bunyan cuts down trees, but that’s one of its jobs when inflation gets out of hand. While successful at cooling inflation, the Fed also has thrown cold water on just about every consumer market out there.
Businesses are deferring plans to purchase capital equipment, consumers are tightening their belts and house hunters are staying home, reluctant to give up their lower-interest mortgage rates. That doesn’t mean businesses no longer want to expand or that consumers have given up plans to spend. And, at some point, those growing families are still going to want that extra bedroom.
The fact is, there is pent-up demand in our economy and with every passing month, that demand grows. At some point, the economic barriers that are keeping people from buying will fall, and all that latent demand will explode in purchasing activity, even if that doesn’t happen in the short run. Where do you want your investments to be when that happens? Will you see it coming? History says you won’t.
Our economy is large and complex. Most people do not have the time or expertise to recognize changing tides, so when markets turn, many are caught by surprise. And the investors who have their money on the sidelines may find themselves standing at the dock as the ship sails away, wondering when the next opportunity will come along.
Financial advisers can help investors make plans customized for individual needs. And when they stick to those plans, they no longer need to recognize recessions or predict economic cycles. They can relax in their seats because they’ll already be on board when stronger markets arrive.