The economic world feels bad right now.
Stocks are down 22% from all-time highs. Bonds are down 17%. Crypto is down 65%.
Last week’s inflation release came in at 8.6% year-over-year. That’s higher than expected. And missing expectations is always bad. These are the highest inflation rates of my lifetime. If you’re under 40, same goes for you.
The Case-Shiller index—which measures the relative cost of residential homes over time—is higher than ever before.
No matter who you are, you’ve got a reason to feel bad about money right now.
Your 401(k), your IRA, your “fun money” on Robin Hood…they’re all down. Your grocery bill is high. The gas station feels crazy. But not as crazy as houses being bought in cash, 20% over asking price, sight unseen while waiving inspection.
I’ll soon be publishing the 6th quarterly review of my personal finances. My spending is up. My investments are down. It’s not a fun combination and yes, it feels bad.
You might be feeling bad too.
You might need help figuring out your budget. You don’t want to invest more money when asset prices are dropping. You’re unsure if your future spending plan is commensurate with your portfolio. Or your tax and estate issues are preventing you from pulling the trigger on important financial decisions.
Or maybe you just want someone to listen to you and remind you that everything will be ok.
Let me know how I can help. Go ahead and message me.
I don’t want to minimize those bad feelings, but here are a few positive ideas I’ve been telling myself lately. And I think they’ll help you too.
It’s Not All Bad
Yes, inflation and the gas pump and the stock market all feel bad right now.
But jobs are plentiful and growing. People are spending money, which is good for the economy. Household balance sheets are in great shape, as they have been (surprisingly) throughout the pandemic.
General economic conditions do feel worse than 6 months ago. But that’s because we arguably had too much optimism in the system. Think of the past few months as a rebalancing, not an implosion.
There Have Been Bad Times Before
This isn’t the first time we’ve seen multiple economic indicators go south at once.
The COVID crash could have been Great Depression 2.0 without Federal stimulus. It was a scary time. Some of our current issues are a reaction to the needed, drastic measures we took in 2020.
The Great Financial Crisis in 2008 was also nearly a Great Depression. Bank credit greases the world’s economic engine. With banks collapsing and credit lines freezing, that economic engine nearly seized.
And those are just two recent scenarios. There have been crashes, recessions, energy crises, small wars, world wars, inflation, depressions, etc. scattered all over the past few hundred years.
Yet here we are.
Humans build, grow, and persevere. We’re resilient. Our economic engine marches on. To instinctively worry, “But this time is different!” is a mistake that many investors have made before.
This time might be different. But you better bring damn good evidence. And personally, I don’t see it.
Know Your Wiring
Human brains are biased and irrational. This is the fundamental underpinning of behavioral economics.
Two such biases are:
- Risk aversion, or the human instinct to see losses as more painful than gains are pleasurable. And thus, we dislike losses more than we enjoy gains. So economic trouble makes us panic more than it should.
- Availability bias, or “the human tendency to think that examples of things that come readily to mind are more representative than is actually the case.”
Both of these biases lead to the same conclusion: when financial scenarios turn bad, it feels like the world is ending.
Fear feels irrationally bad and worst-case scenarios jump to mind. And it leads many investors to make irrationally stupid choices.
Try hard—try really hard—to not be that investor.
It Won’t Be Easy
Personal finance and investing are hard because you have to stay realistic. You need optimism when others are panicking and pessimism when others are reveling. You have to be rational when irrationality is popular.
The past ~13 years made investing easy and fun.
But not right now.
The past 6 months haven’t been easy or fun. It feels bad. And it might stay that way for a while.
But times like these—and your reactions to them—make all the difference.