Not the End of the World – The Cyclical Nature of the Economy

by Stacy Francis, CFP®, CDFA

During a recent charity dinner, I ended up at the same table as a successful financial newsletter writer. He is semi-retired now, in his seventies, but the many years he spent studying the financial markets and the economy have provided him with invaluable insight and a thorough understanding of the two. The problem with humankind, he told me, is that we don’t live long enough. This is why every time we have a boom, we delusion ourselves to believe that it is going to last forever, and every time we have a recession, we are sure it is the end of the world.

The truth is that the economy follows a cyclical pattern. After boom follows downturn, recession, then growth, and eventually we have a boom again. Of course, we all know, in theory, that this is how things work. But in order to truly believe it, we have to experience it over and over again– and by the time we are finally convinced, we die. If humans lived for 150 years, he argued, we would have much less drastic ups and downs in the economy, because people would know in their hearts that this is true.

Does anyone remember the early nineties? There was this doomsday-vibe in the air, and everyone was terrified. Media, of course, added to the fear by telling us that this was a recession like the world had never seen before, and there was no way of telling what would happen. Well, what do you know? We had an amazing boom that brought prosperity to many. And about the message from the media . . . it sounds a lot like . . . today. 

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