Can Recessions Be Good?
By: Max Valavanis, CFP®
What a silly question; recessions can never be good. People lose their jobs, companies close their doors, and 401(k)s suffer. So how can a recession be good? I must be a crazy financial advisor even to suggest the idea. Well, I am not, and here is why:
High-rolling economies with record-breaking revenues and spending can only get us so far. Corporations and governments get addicted to the irresistible cash flows that appear everlasting. Even individuals and families spend as if the tap will never stop. This excessive spending and gluttonous borrowing drive our economy into dangerous territory.
Looking to recent history, events such as the dot-com bubble or the infamous Great Recession come to mind. For example, leading up to 2007, loose lending/borrowing practices fueled the housing market to collapse. Where was the check valve? Although we didn’t have a literal mechanical safety switch at our disposal, we had one useful event that always rears its ugly head. This so-called “unwanted” event has a knack for giving us a reality check. This, of course, is a recession.
Generally, a recession is the pullback of spending, borrowing, and financial expansion. While the media portrays this economic pullback as an unnecessary evil, institutions and universities teach us that a recession is a part of a healthy economic cycle.
When the economy heats up, people make irrational and impulsive decisions. Big corporations invest in substandard programs and hire people they cannot sustain. Meanwhile, individuals and families may purchase that shiny new car they can’t afford or use their emergency fund on that all-inclusive vacation in Cancun they don’t need. Hot economics leads to poor choices that could come around and bite us in the rear.
Of course, recessions result in lost jobs and fewer profits for corporations and investors. In no way do I aim to minimize the negative impacts of recessions. That being said, you can use this time to learn and adapt to the inevitable future economic declines. The government does so with new and stricter laws, so why can’t you? You can “regroup” and assess how you live, spend, invest, and play. Recessions allow corporations, families, and individuals to step back and say, “what the heck are we doing?” This is an opportunity for consolidation, debt reduction, trimming back, and reflection. A recession may be the catalyst needed to change your life for the better.
Although the government will not officially state that we are in a recession, millions around the country feel recession-like effects. Now is a great time to reassess where you are financially and what can be done to protect you from a recession. Our office specializes in numerous conservative approaches to better prepare investors like you from downturns in the market and other recession-like symptoms. Give us a call to see how we may be able to help you.
Max ValaVanis, CFP® is a co-owner of ValaVanis Financial in downtown Melbourne and in Rockledge. Max specializes in lifetime income planning for Retirees while protecting principal. Max can be reached at 321-956-7072.