The economy impacts everyone’s lives.
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 bit more palatable if we understand the history of it and how it works into our larger financial lives.
Consumers during the 1980s will remember that inflation was quite high. Interest rates on car loans and mortgages were in the teens and even low twenties.
The prime rate, which is the rate that banks charge their best clients, was in the teens. Inflation followed this trend and also was in the teens — more than 13%.
Inflation generally has run closer to the 2.5% to 4% range over long periods. Prior to the recent increase in the US stock market over almost a decade, our stock market had average 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 roaring stock market indicates that it’s not surprising that things are balancing out to become closer to historic trends.
One of the constants in financial markets is that with each change there will be a large number of pundits saying, “this time is different.”
To a certain extent, that’s true.
Each situation is different. We are now in an information age and steam engine locomotives aren’t 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 wasn’t a global pandemic.
But there are still some fundamentals that we might expect to see play out, and we can be calm and proactive in responding to economic conditions.
Low unemployment has led some consumers to grumble about customer service in several arenas.
While low unemployment rates are great for folks who struggled to find work and make financial ends meet during the early stages of the pandemic, this is not a time to be part of the problem of employee job performance.
Those who needed a break to get into the workforce, now have a wonderful opportunity to prove themselves as conscientious employees. When the employment market tightens, employees who have been less than conscientious with their work will be the first to go.
Much of what’s needed to get through economic shifts is to not make short-term moves that impact long-term conditions.
Two moves such involve investments.
If money is invested for the long term, pulling that money out of the stock market could be an unwise move with long-term impacts.
The same is true of putting money available for emergencies into the stock market. Keep emergency money safe and liquid, which might seem boring.
And don’t let fear and uncertainly lead you to make decisions that will negatively impact your long-term nest egg.
Linda Leitz is a certified financial planner. She can be reached at firstname.lastname@example.org.