I would guess it probably doesn’t. In fact, many times you probably find beauty in sun sets, I do.
Why doesn’t it scare you?
Because you know that this is a repeating process, and as adults we understand it’s just the rotation of the earth that causes the “sun to set.” We learned as children that morning comes without fail.
Let’s use the setting of the sun as an analogy in how we can think about recessions.
Somewhat like the path of the sun across the sky rising and falling, recessions are preceded and followed by periods of economic growth. One cannot happen without the other.
- Fact: Over the past 75 years, there have been 12 recessions. When we do the simple math, this equates to a recession happening about once every 6 years.
- Fact: During this same time period, the stock market has experienced many severe drawdowns of 30%, 40% and even more than 50%.
- Fact: In spite of this, the US economy has grown to be 100 times larger than it started 75 years earlier.
- Fact: The stock market turned a $10,000 investment into over $2.2 million over this same time period.
If we understand recessions are going to come and then go, we shouldn’t be overly concerned about the next recession – assuming your financial house in order. Some areas that should be thoroughly reviewed:
- Do you have adequate savings set aside should you be laid off or your business slows?
- Is your health insurance adequate?
- Are you properly invested in your various investment accounts (IRA, Roth, 401k, 457, brokerage, etc.)?
- Are your family and assets properly insured?
- When was the last time your estate planning documents were reviewed by a professional?
Assuming everything is in order, let’s look at the glass half full and look past the next recession with our eye on the growth period that will follow the next recession.
Just as the sun will rise after the sunset that preceded it, there will be another prosperous period that follows the next recession.
-Paul R. Rossi, CFA