Skip to Content

Preparing for a Slowdown

January 5, 2015 •

The historical trend says that the markets will keep going up. However, that doesn’t mean that it’s necessarily so indefinitely into the future. Despite what most experts believe, there’s no reason to expect that this absolutely must happen. The Baby Boomer generation, those born in the 20 or so years after World War II, were part of a worldwide shift in wealth and way of thinking. A lot happened during their lifetimes: the U.S. went off the gold standard, inflation skyrocketed, and growth became an expectation–not a once in a while thing. To be sure, the post-Depression world has seen an average growth of 3 percent per year in the U.S.’s major indices. Before the Depression, the rate was lower.

This has created the illusion that investing is the best possible thing you can do with your money. It is expected that if you put your money into the market, 25 or 30 years from now, it will be a lot more money. It’s expected that the money will grow considerably, especially if you keep adding more to it so that you can keep seeing more and more compound interest. It’s a great idea, but it isn’t necessarily a tried and tested truth. Investing is a good idea, but it isn’t the end all be all when it comes to managing your personal wealth.

The truth is, earnings per individual are starting to slow down in their growth. If you adjust for inflation, people are earning much less now than they were in 1970, which is actually a bit of a surprising statistic. However, the shift in attitude explains this, a bit. There is a much higher emphasis on education now, and this has made the competitive jobs pay a lot less since the playing field is much more even. Regardless, the fact remains that investing your money like people did in the past–just buying and holding for a really long time–isn’t necessarily the bst approach.

A more active method will give you better results than this. Trading–short term buying and selling–can give you an advantage over a possible slowdown in growth. It can even protect you from falling prices as it gives you access to downward movement profits, like with short sales and put options. You can move in and out of a position with ease with trading, not worrying about waiting for your assets of choice to finally outperform inflation.

You probably wonder why people are not doing this already. Active trading is not easy, and things like index investing are much easier. The market has “always” provided returns with funds, so it’s easy to believe that it will keep doing so. However, that doesn’t mean that it will keep going on like this. Active approaches take effort, and it can be easy to just rely on someone else to monitor things for you. But it might end up that this doesn’t provide worthwhile results. Taking control of your own cash, learning how to make it grow with your own work and knowledge, will be a valuable skill if the rate of growth of the market does slow in the future.

Still, many people might find themselves in a position where taking control of their own cash isn’t feasible. Trading in the stock market–or any market, really–can be expensive, and seeing sixeable gains usually isn’t possible unless you have $100,000 or more to spend on this. This means that smaller trading methods, like binary options and Forex leverage, will become much more popular in the future. Trading with these now can give you an edge in the future. Even if the markets never slow down, you can learn how to outpace them with a solid short term strategy in other markets like these.

Categories: Starting Out
Comments Off on Preparing for a Slowdown