Stocks and Investing: The sky is falling!...or is it really?
It's important to put all of this in context. Do we have inflation? Yes, the prices of many goods are rising, and that's due to a whole lot of different factors. The price of oil is one that is mentioned often. But the cost and availability of raw materials is another factor, and one that more relates to the buying habits of consumers. Our buying habits do have an effect on the price of things, as wholesalers and retailers will adjust their pricing according to the demands of consumers.
And then we have the stock market. Yes, the Dow Jones has fallen a good bit, but remember that it is only one measure of the health of companies and the economy. There are other measures like the S&P 500, but no matter the measure, it is often biased because it only includes certain sectors or companies of a certain size.
I'm not denying that there is a financial pinch right now, and that markets around the world are panicking too. Yes, subprime lending problems have affected many industries. Oil prices are creating problems for businesses. The dollar's value has dropped relative to other currencies. If there is one theme of this rambling post of mine, it's that there are a million different things influencing economies all over the world. Yes, it pays to be cautious and conservative with our money right now, especially if you are on a tight budget.
But is it time to panic? I don't think so. For starters, the stock market did really well last year, and some correction this year isn't a surprise to the experts. Even though we are seeing inflation, economists don't think we're in full-blown recession yet. Why panic? I almost think that we're talking ourselves into a recession. Cause enough panic with consumers, they stop spending their money, and we keep inching toward that recession.
If you've got money invested in a retirement plan, it's not the time to start freaking out and selling all your stocks either. Sit back and examine the long-term implications of the holdings in your retirement account. Panic selling almost never works out well.
Be budget-conscious with your money, plan for tough times, and save some money for a rainy day. But don't let all the naysayers ruin our economy by making the cry of "recession" a self-fulfilling prophecy. The economy has been strong and I don't think that it's going to tank like some experts are predicting. Don't fall for the hype.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.