How To Prepare For Tough Economic Times
None of us is being spared in reaction to the falling stock market and the collapse of many powerful financial institutions. Unless you’ve been keeping your money in cash and saving it under your mattress all these years, you know how horrible the news was when last recession hit in terms of loss of value of our savings, 401Ks and stock portfolios. However, let’s understand the loss is in paper, it is the value of your stock portfolio if you were to sell it today.
If you’ve been investing in a 401K, a retirement fund, all these years, you know that in some cases the worth of the investment was down as much as 40-percent! But this sharp decrease in value only had an impact on you if you were planning on retiring soon and drawing on your investments. If you kept the investment where it was, the market eventually went up and you had the value back. I hope you didn’t take your money out and if you did, you probably experience a tremendous loss.
Even with investment firms that went bankrupt, your money is still there because the stocks are in your name as are the ownership certificates. The federal government increased the protection of your savings account from $100,000 to $250,000. That meant that if the bank collapses and ceases to be in business, your funds were insured by our national government. This is what is referred to as FDIC insured.
These are the basic hard facts. And hard they are if you were counting on obtaining a mortgage and your financial worth has decreased substantially. Or if you were planning on retiring and drawing on your 401K you know that you have suffered a huge loss in financial value.
The two areas where you might have taken a direct hit were; One, if part or all of your income allowance has been dependent on dividends. You know that because of the value of the stock you own has plummeted, your dividend income has also dropped significantly.
Two, if your stock broker was buying stock on your behalf based on margin loans. This is when stock is being purchased using borrowed money in the hope that the difference between the increase in the stock cost will pay off the margin loan.
This is a very difficult situation for the individual who has been living off his stock market income. Hopefully, he has diversified his investments and that he has money in a savings account, treasury note or CDs.
If you were planning on selling your apartment or house at tough economic times, it will be more difficult to get your asking price and for a buyer to obtain financing. Tough times mean that it is a buyer’s market. This is all very well and good providing a buyer pays all cash or is able to get a mortgage, but not an easy task. In bad times most real estate will go down average of 20% to 30%. However, worst hit will be some luxury homes which could lose 50% of heir values.
As you probably saw by last recession or watching the news on television, thousands of people in the financial industry lost their jobs and these are well educated, highly experienced men and women who have financial responsibilities. Many of these people were in my psychotherapy practice and I urged them to turn to parents and family members for help and consider temporary employment in a different industry.
But most importantly I told them that essentially the sky is not falling. Yes, it looks horribly gloomy particularly for a family man who is dependent on his regular income.
The lack of stability in the financial world can be infectious. It can have the impact that our world as we’ve known it has come to an end. It can bleed into our everyday lives and make us feel as if we are unstable and that the next blow can be the final one. So much of our self worth has been linked to the money we make, our lifestyle, the stores we shop in, the cars we drive, the vacations we go on, and the restaurants we eat in.