We know the story of Chicken Little. He was the one who was always proclaiming that "the sky is falling". The recent events with the financial situation reminds me of the children's story. Unfortunately, in this scenario we are not referring to a child's game. The crisis we are confronting is a serious and difficult one. It will take some navigating on the part of many to get through it.
Nevertheless, for the last week I heard from the political leadership that we will enter into extreme chaos if this bill is not passed. First, it had to be done last week and that delay would mean the end of life as we knew it. Of course, Congress did not pass the bill last week, one which we all survived. Then, we were told it had to be done yesterday. Again, we saw the same results. Congress does not act yet the world was still in one piece this morning. Each time demonstrated an over reaction.
How often do you make like Chicken Little? The reactions to the present circumstance teach us how important it is to step back and relax. Even when faced with a tough situation, knee jerk reactions rarely solve anything. Panic is a state that is best avoided if we want a productive outcome. Operating in a state of frenzy diminishes our capacity to rationalize through a series of problems. I believe we are witnessing this at a national (if not worldwide) level. The 778 drop in the stock market is evidence of how panic is taking hold. Fear is the primary motivation.
Can you keep your head while everyone else is losing it around you? We need to seek the calm in the middle of the storm. Here are some helpful reminders. Most people are going to come through this situation remarkably well.
Here are four things to consider:
1. The banks might be at risk; your deposits are not.
The FDIC insures all account holders up to $100,000 with the possibility that limit will be raised. This money is secured by the government and you are protected. Most people have accounts that are well below those limits.
2. Your 401K and IRA are still there.
These balances are being hammered. However, unless you are retiring tomorrow, there is time to get back what was lost. Anyone who is under 59.5 cannot touch the money without penalty and taxes being applied. For these people, the money is going to be there for another 5,10, or 20 years. There is plenty of time for it to rebound.
3. Stocks will come back.
If you are holding a stock in a good company, it will recover. The losses in the market recently are not company or industry specific. The market is being pounded by macroeconomic factors. Even if the stock is off 30%, that will be recouped in the next bull run provided you are in a good company. Anything you incurred is a paper loss that can be overcome with a bit of long-term perspective.
4. People are always in need of goods and services
The Chicken Little's will tell how the economy is about to collapse. While downturns will occur, the world will not stop. People all over the world will continue to need goods and services. Medical attention is always needed. So is food, clothing, and shelter. Lawyers, I am sad to say, will always be around looking to put in their two cents. We still need to prepare our taxes, fill our cars with gas, and put shoes on our feet. A multi-trillion dollar economy will not go to zero.
With each set back there is opportunity. Warren Buffet is on a buying spree. He is finding incredible bargains which will make him a lot of money over the next few years. We will rush to the local department store to buy all kinds of stuff the day after Thanksgiving because of the sales yet fret when the stock market goes on sale. That is consumerism logic at its finest.
There is no doubt there are some tough times ahead. However, do not compound them with thoughts of doom and gloom. This only makes recovering from it that much more difficult. Be wise in your decisions and you will prevail. There are fantastic opportunities at this moment for you to exploit. If you doubt that, consider that one of the most famous companies in the world got its start in the middle of The Great Depression. Look up the history of Hewlett-Packard to motivate yourself. Good times are ahead of you.
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