With our economy in such a mess, I'm often asked what I expect in the months or years to come. Well, I have no crystal ball, but I suspect that there will be a hefty serving of good and bad in our future.
Let's start with the bad. We're in a recession, with lots of people out of work. Recessions do end, but it can take a while. Part of the problem is a domino effect. Think of all of those unemployed people. They're spending less, and that will put pressure on companies that want to serve them, especially those that sell expensive items and purchases that can be put off, such as automobiles, dishwashers, cruises, luggage, and even computers.
We've already seen some businesses fail in 2008, with Best Buy
Meanwhile, the unemployed will spend less, but some expenses won't be avoidable -- such as food, utilities, and shelter. Many will charge lots of purchases on credit cards but will be unable to pay. This will put pressure on financial-services companies, such as Capital One Financial
Even public employees have reason to be nervous. With fewer wages being earned and less spending going on, tax revenues will be smaller. Local governments may find themselves having to make do with less, and some have already started looking at downsizing as a necessary measure.
See? One thing leads to another, and things may very well get worse before they get better. But even within the bad, there's some good.
The good
In these tough times, both consumers and businesses are finding that they have to toughen up and develop more discipline. Consumers are saving more -- probably just in case they lose their jobs, for one thing. They're spending less -- which in many cases is good, because recent high credit card balances suggest that many Americans have been buying much more than they could really afford. And they're likely to start shopping more carefully, as they seek out bargains and values.
Meanwhile, businesses are also looking to trim where they can. Lenders are being smarter about the loans they make, which will probably lead to fewer defaults in the future. Some businesses, faced with challenges, will come up with revolutionary new ways to do things, and they'll save or make more money in the process. (Some of these will be Rule Breakers companies -- learn more about how some of them offer the highest possible returns.)
A final bright side to the recession is that so many stocks are on sale right now. I know you've heard us say it before, but this might be the best opportunity of the past 35 years.
What to do
So what should you do? Well, keep on getting smarter about money. If you have money you won't need for at least five years, consider investing it in some beaten-down but healthy stocks. Tend to your retirement plan, too -- making the most of your 401(k), for example. Take a long-term view for your investments, and remember that every past recession has eventually ended, followed by periods of increases in the stock market.
