Dealing With Bad Economic Conditions

Hi All,

So, I’m listening to the radio this morning, and there is yet another story about the countries poor economic conditions. This leads me to believe that many people are wondering how to cope with the current economic hard times.

We certainly are…for example our stocks have taken a huge hit over the past couple of months. Since June, the value of our stock have declined by 22.5%. Specifically we’ve gone from about $123,000 to $91,000 in the value our Schwab accounts. Not great. However, we’ve been blessed that things aren’t as bad in DC as they are in other parts of the nation. For example, overall inflation in the DC/Baltimore area has been around 4.4%, when most of the nation has seen 5.5% (1).

So, in an era of declining stock prices and increasing inflation, what should one do to keep the bottom line healthy? Of course, we DINKs aren’t experts, but there should be at least two things one could consider:

1) Stay Focused:

If you have goals, stay focused on them. Don’t get distracted in thinking about poor macroeconomic conditions or high inflation rates. Unless you are a member of the federal reserve board of governor’s there isn’t much you can do about the big picture.

However, it does make sense to think critically about your goals in light of how the economy is changing. For example, if your goal is maintaining your emergency fund money, you might investing your funds in Treasury Inflation Protected Securities (TIPS). This would account for inflation and provide a healthy level of safety.

2) Continue To Use Proven Strategies:

The second thing to consider is relying on tried and true strategies for building wealth. These are

1) Owning your own home
2) Investing in stocks
3) Paying off high interest debt
4) Spending less than you earn

There are a number of reasons why these work. Mostly however America is built on western conceptualizations of property and profit, so this means that people who own real estate and shares in profitable companies tend to be better off. Conversely, if you owe someone an expensive debt or spend more than you earn, you’re at a disadvantage legally and economically.

Ultimately, even if the economy is having some problems it make sense to stick to the basics: stay goal focused, and do what has been proven to build wealth over time.

Best,

James