Believe it or not, the recession has perks

Recession has benefits for Gen X and Y

Thanks to the Skilled Investor for including us in its Carnival of Financial Planning for Mar 7.

Really?  Yes.  And I’m not talking about the less stress, better health, more me and my family-time kind of perks.

Let’s rewind.

For months, we have been pounded in the head over and over again on the evils brought on by the recession.  Let’s recount the havoc wreaked.

  • Retirees have seen their savings significantly reduced or wiped out, some even going back to work to alleviate the cash problem.
  • Baby boomers see their expected retirement date stretched indefinitely into the horizon, investments portfolio reduced, housing worth shattered.
  • Gen X are getting squeezed in the workplace in more ways than one, and feels more insecure in the job market.
  • Gen Y, having just gotten their feet wet in the workplace, feels betrayed by the many promises dangled in front of them.  Demographers have predicted speedy career advancements as a result of baby boomer exits. So much for that.

There has been considerable faults placed on the baby boomers, in their relative easy paths to success in America since the 1950s.  There were no major war nor catastrophic financial turmoil, jobs were easy to come by, properties were cheap, and the infrastructures were there to service their every need.  Many Gen Y and Gen X blame the “selfish” generation for their over-the-top consumption, excessive debts, degradation of the environment, mis-management of the social security and health care systems that will be defunct as soon as they have benefited from it, and falling asleep at the helm when it comes to financial regulation that plunged the nation, and perhaps the world, into the perilous position that we are in now.

Simplistic and over-dramatic? Indeed it is.  But there is no denying that for the younger generations, the foreseeable future is an uphill battle.  The workplace will only become more competitive, property prices are still steep in many parts of the country, health care and social security is broken, and country is bankrupt. Ouch.

But is this recession really the be-all and end-all that a lot of people make it out to be? Of course not.  Is there a silver lining under all these stories of misery? Of course there is, as there always is, during times of unjustifiable pessimism.

Times are bad, and things are difficult.  But as Warren Buffet said, and I’m paraphrasing him here, that in the last a hundred years, the US has seen a flu epidemic, two world wars, a great depression, a dozen recessions and panics, and by the end of the century, an average American was living seven times as well as they did beginning of the century.

Granted, many people lament that this will be the first generation that will not live as well as their parents.  And surely, we have no reason to expect the past to repeat itself indefinitely into the future.  But perhaps this recession will even out the playing ground just a little bit for the disgruntled X and Ys.

1. Housing will be invariably cheaper than it would otherwise be.  If anything, the recession has “reset” the astronomical rise in property prices in many parts of the US and UK.  With substantially lower prices and tighter lending policies, tighter credit making the rounds means slower rise in housing prices.  That is, housing prices will not rise in a way that is unsupported by an increase in demand or value.  Bubbles of this magnitude will not happen again in the foreseeable future.  Good news for everyone that’s looking to buy or upgrade their housing in the coming decades.

2. This is the golden nugget.  The credit bubble burst has led to massive de-leveraging across the board.  The resulting catastrophe means that many markets are giving back all the advances made this century.  These kind of price resets probably happen once in a generation, if that.  That’s to say, this is a great opportunity to pick out some businesses to hold for the long run – businesses that are sound and well managed, yet due to overall market sentiment, trading very cheaply compared to their intrinsic value.  Even if your previous savings are seriously damaged, for the Gen X and Y, your best earning years are still in front of you.  In the meantime, educate yourself and take advantage of market corrections such as this.

3. If nothing else, let this be a serious educational experience for all of us, especially those who still have our best investing years ahead of us.  Jobs will come back in one form or another, we will consume, the standard of living will again rise, the bear market will give away to the bull, and irrational exuberance will invariably creep its way back into the market.  When that happens, turn off the TV, remember all that you have seen and learned in the last year, and act accordingly.

I will leave you with those words from Benjamin Graham, to be taken with a grain of salt, both in times of relentless pessimism and times of unjustifiable optimism not far off in the future.

Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble … to give way to hope, fear and greed.

picture source: ~MaraleA

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