The United States economy, and arguably the world economy, is rapidly reaching a tipping point. While there has been a lot of talk on TV about the recession that we are entering, the reality is that there hasn't been much pain so far. It's true that the stock market and retirement funds are down, but that doesn't impact people unless they are now retired or otherwise need the money to live on. We've all heard about the credit crisis; the failure of Lehman Brothers; the bailout of AIG; and the bailout of the Wall Street Fatcat Bankers! However, once again, most people have not been directly affected by these problems.
Unfortunately, all of that is about to change. Job losses are starting to accelerate and will dramatically increase early in 2009. Regardless of what happens with the auto company bailouts, jobs will be lost and retirements will be ruined. As job losses accelerate, people will spend even less; foreclosures will increase; and credit card defaults will skyrocket. This will cause even more job losses and we will enter vicious circle. It is very possible (if not likely) that a depression will occur.
The point of this post is that THIS IS A TIME FOR CAUTION! Capital preservation is a must. If you have money, put it in the bank and try to hang on to it! If you decide to invest in real estate - BUY AT A HUGE DISCOUNT! This is not the time for wreckless speculation or excess risk. My suggestion is to carefully consider every dollar you spend and certainly don't risk your money on anything that isn't a sure thing.
There is a lot of hype about this recession/depression being an unprecedented opportunity. That is certainly true. People that know exactly what they're doing and who buy assets at a HUGE discount will prosper. People who lack knowledge and don't buy right will be destroyed. CAUTION is the word of the day!
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2 comments:
What about paying off debt? If you have some managable debt you are trying to pay off like a car loan and mortgage would you suggest stocking cash or work to pay off the debt to create cashflow. (Car Loan) this is assuming that the payer is still actively employed.
That depends on a lot of factors, such as the likelihood that your job is secure; the interest rate of the loan; etc. In any case, I would certainly want to have some cash available for an emergency fund first, so I would start with that.
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