Inflation, Market Instability, What to Do?
Market instability is nothing new — there have been ups and downs over the years. The great recession of 2008 was a kick in the teeth for many people, but with the recent panic on Wall Street in the wake of a pandemic and rising inflation, there have been concerns of another potential crash on the way.
Tesla CEO Elon Musk made a prediction in May that a recession was on its way and that it was in his opinion “a good thing” and that “a rude awakening” was needed to shift attitudes away from a post-pandemic freeloader culture. While opinions will certainly differ on that subject, depending on who you talk to, it seems his predictions may not be far off. Early June saw a massive stock market sell-off and markets around the world were sent into a tumble.
Inflation has led the headlines in the US, reaching a four-decade high of 8.6 percent, and even as wages have grown, inflation has knocked real wages down by 3 percent. High energy prices have plagued Americans reaching a national average of $5 per gallon at the pumps.
The Federal Reserve is grappling with a faster rollback of its aggressive monetary stimulus. Alt-hough the central bank already introduced two interest rate hikes this year — 0.25 percent in March and 0.5 percent in May — a 0.75 percent rate hike may now be on the table too.
The US isn’t the only market to be affected by this situation either. The World Bank has stated that “Global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies. If inflation remains elevated, a repeat of the resolution of the earlier stagflation episode could translate into a sharp global downturn along with financial crises in some emerging market and developing economies.”
There have been canaries in the mine for some time now though. In 2016 The International Monetary Fund was warning of another financial crisis, saying that urgent action would be required to stabilize eurozone banks.
But with all this less-than-great news, what can be done about it? Here are some things that can be done to weather a potential financial storm and maintain stability, no matter what transpires in the economic halls of power.
Save
Have an emergency fund at your fingertips. An emergency fund is cash that you’ve saved up for the sole purpose of helping you maintain your financial obligations through emergencies that life deals out. If you do have expendable funds, then consider the idea of investing in gold or something that is stable and easy to sell if you ever find yourself in need of some quick cash.
Debt
Getting out of debt is a good idea, whether there is a financial crisis on the way or not. American household debt hit a record $15.24 trillion in 2021. Mortgages, which are the largest component of household debt, rose by $230 billion last quarter and totaled $10.67 trillion. Auto loans and student loan balances also increased, rising by $28 billion and $14 billion, respectively.[4] This may be seen as a positive, assuming that consumer confidence is up and real estate investment is also on the rise, but even though credit card debt has yet to get back to its pre-pandemic level, total debt is already $1.1 trillion higher than at the end of 2019.
Conservative Investments
Martin Walcoe, President and CEO of David Lerner Associates says, “Don’t be tricked by the call of the wild which promises unreasonable returns. Now is not the time to gamble your finances away. A sensible middle ground of investing is the way to go. Investments that are based on real value and pay dividends and interest.”
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