Stock market volatility has returned with a vengeance, as this chart of the Dow over the last 3 months starkly illustrates.
We’re facing a whirlwind of economic challenges we have little or no control over. Here are the top 5 currently contributing to the volatility:
Challenge #1: Inflation has hit a 40-year high
That’s hammering consumers, wiping out pay raises, and reinforcing the Federal Reserve’s decision to rip off the band-aid and raise borrowing rates multiple times this year alone, which some economists fear will trigger a recession.
Challenge #2: The pandemic and rock bottom interest rates pushed home prices up at a head-spinning rate
But now, with mortgage rates up and about to go higher, demand waning, and the average home buyer priced out of the market, experts are predicting the housing market is in for some pain. “A decline of 15%-20% (in single-family home prices) seems likely,” according to real estate market expert Gary Shilling, who has been very accurate in his predictions.
Challenge #3: Meanwhile, household debt has hit a new high
Just as Americans returned to pre-pandemic spending habits and savings rates have plunged.
Challenge #4: This is all happening as interest rates on almost everything have soared… except on savings accounts….
Higher interest rates on debt will only make it more difficult and painful for consumers and our country to pay down debt.
Challenge #5: Russia has waged war on Ukraine
This has roiled markets, raised fears and is likely to have far-ranging repercussions.
Compounding these challenges is the fact that many people were lulled into a false sense of security, believing that the stock market and home prices only go up and interest rates and inflation would stay low forever.
Many have forgotten the lessons learned during the last two market crashes that wiped out 50% or more of the average investors’ life savings and caused unimaginable pain for tens of millions of people…
Lesson #1: There is an enormous difference between “paper wealth” and “real wealth” – the surge in value of your retirement accounts and your home is an illusion – just a bunch of eye-popping numbers on paper. Those numbers repeatedly sucker many of us into believing we have real wealth and financial security when we do not.
Reality: You don’t lock in a profit until you sell an investment. And you shouldn’t have to worry about when the next market crash will come and turn your retirement dreams into a nightmare.
Lesson #2: Having an emergency fund equal to 3 or even 6 months of your expenses won’t come even close to cutting it. Most Americans invest rather than save. As a result, surveys show most people can’t come up with the money to cover even a relatively small, unexpected expense. A major emergency can devastate them.
Reality: The secret to enjoying a financially stress-free life is to have a solid foundation of safe and liquid cash reserves you can use for emergencies and opportunities equal to at least two years of your household expenses.
Lesson #3: Your banker is not your friend (even if you golfed together every week for years). As Mark Twain noted…
“A banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it begins to rain.”
Reality: Banks and finance companies can (and do) jack up your interest rates and shut down your credit lines with no notice. They charge you outrageous interest rates while paying you so little on your savings accounts and CDs that you need a magnifying glass to see it.
How Do You Gain Control of Your Finances and Position Yourself for Success – No Matter What’s Happening in the Markets or the Economy?
Here are 5 ways the Bank On Yourself safe wealth-building strategy is the Swiss Army knife of financial planning strategies…
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