We hear a lot about the economy these days, especially the rate of inflation and the potential that it could trigger a major recession.
It was a historically poor year for investing, one that could go down in history akin to 1929. It’s not a good time to have money in the bank but limited income.
Even people who invest conservatively have lost significant percentages of their net worth, up to about 15 percent.
That’s because it’s a rare time in history when both the stock market and the bond market struggle. Experts pay attention to where the market has moved historically, but it’s hard to say if that’s a good indicator. The situation in 2022 is new territory. We have never seen these circumstances because we have never had the aftermath of COVID.
Investors of all ages are concerned. Getting started is difficult for young people. Those who are a little older have seen many of their gains wiped out over the past few years.
It’s probably worst for investors nearing retirement. What should have been among the best and wealth-improving years coincided with an historic downturn.
My generation (Generation X) has always dealt with economic disadvantages. Many of the developments over the past 50 years have been driven by the baby boomer generation, leaving Gen Xers with limited options along the way.
When baby boomers started buying homes, they fueled strong demand and set America on a path to rapidly rising home prices.
As they established themselves in many of the highest-paying jobs in business, finance, academia, and other fields, this resulted in limited advancement potential for younger professionals. There were less good openings at the upper level.
Now the economy is struggling due to post-COVID spending. Most people stayed home during the pandemic, often working from home. They didn’t come out much. You didn’t spend.
In 2022 there is a desire for travel, entertainment and consumer goods. Many people don’t save at all. They figure that if you have extra money, it might as well be spent.
This has led to higher prices and increased the trend towards supply chain problems. Sooner or later, people are expected to cut spending, which could slow the economy and end positive trends like recent job growth.
The volatility in 2022 is evidence that 21st century America has become overly corporate and overly dependent on large corporate structures.
A local and regional component is particularly important in retail. Historically, this has been a reliable backbone for business communities that could still prove valuable.
The question is whether or not government should be used to steer the economy. Progressives advocate higher taxes on corporations and the wealthy, with the idea that more money could be put into the hands of ordinary people.
Others say we should leave enough money alone, let the economy take care of itself, and expect individuals to manage their personal finances in a practical way.
When deciding how far to go with regulation, it’s important to ask how much the average person’s life savings should be at risk. Today, the only real option for retirement accounts is to tie them to the stock and bond markets.
There used to be pensions. In the past, people could earn good amounts of interest with certificates of deposit. Now there is much less financial security.
One thing that hasn’t changed is the need to plan for a rainy day. The only difference is that now it is about potential economic downturns and the potential for contingency spending.
Making smart decisions about what to buy and when to hold off on a major purchase has never been more important.
A person who is heavily in debt as a young adult is less likely to ever achieve real financial security in retirement. It’s more likely when we know how to live within our means.
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