Thursday, September 25, 2008

Is the Sky Falling?

The past two weeks have seen some of the greatest financial volatility and dire predictions of modern times. Even some of the most savvy investment experts seem on the verge of real panic as bad mortgage investments lead to broad problems throughout the economy.

Many of my friends are asking me "are we on the brink of another great depression?" Of course, I don't have a crystal ball and I don't know how bad things are going to get in the months to come. But I do know one thing: those who have been consistently saving money and living within their means will weather the coming storm better than those who haven't.

It's easy to get cynical and angry about the reckless Wall Street practices which led to this mess. I am as angry as every other honest investor about the collateral damage my portfolio is suffering as a result of greedy investment banker speculation. It makes me sick to think that taxpayers will be required to bail out these criminals.

But that is the nature of our globalized free market economy. Just as the rising tide of 2003-2007 lifted all boats, so the current economic contraction threatens to lower all boats to varying extents. Like it or not, we are all very interconnected these days, and in the long run, the upside of that global network outweighs the disadvantages.

Rest assured that the people involved in the riskiest speculation during the housing boom will suffer the most painful consequences in its aftermath, with or without a bailout. Those of us who have been conservatively investing and staying out of debt all along will also get hurt, but to a significantly lesser extent. The people who stand to suffer the most are those who never saved anything at all, and thus have no safety net to fall back on when times get tough.

This is not the time to abandon your savings plan. Just as you will have good days and bad days in your instrumental practice regimen, you can also expect to go through peaks and valleys on your path to financial independence. Remember that long-term winners persevere through thick and thin, knowing that there will be ups and downs along the way.

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