Market Overview

What Happens Next After this Crisis?

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The current state of the economy in the United States can still be considered as existing in a crisis state. It is true that some aspects of the economy are improving but there are other aspects that have not yet started to improve. From a short term perspective things are getting better slowly. From a long term perspective the economy is still in danger.

One need only look at current events and political news to see that the U.S. is in danger of stagnation. The very aspects of the legislative branch of government that provide necessary checks and balances against each other also act as a barrier to forward progress. This may not seem connected directly to individual investments but the situation is directly connected. In the U.S. it is the federal government that establishes fiscal and monetary policy. The government tries to manage the policy to the benefit of the residents of the country but are not always successful.

The reason the government is not always successful can be attributed to many factors, three of which are very prominent. First, the government likes to keep the economy on a forward high note but this is not always possible. The economy naturally goes in up and down movements called inflation, depression and recession. Second, the government exists divided between two political parties who sometimes will not work together because of opposing priorities. And third, the government will change its behavior near times of elections in order to sway public opinion to retain votes.

For someone who has individual investments trying to predict the future market can be difficult. A change in speculation over a political, current or global event can impact any investment suddenly. During an economic crisis it is normal, even expected, that some investments might decrease in value. Global investments are less impacted by local or national events but if other countries are also experiencing a crisis even global investments can see decreases in value. With the exception of some stable or hard investments which are often low risk, the majority of investments do decrease during a crisis. This is further compounded by the fact that many people when scared lose faith and pull their investments or immediately sell in order to minimize their losses.

Investing one's money is a long term strategy for most people. Saving back money out of fear can escalate a financial crisis creating a domino effect by influencing the perception and speculations of other investors. Referring back to the fact that the economy moves in cycles, an investor should expect to see stocks fall and rise through the course of a long term investment with the ultimate goal being to have a stock that has more gain than loss. After a crisis starts to recede previous investments that had decreased in value should slowly rise with the recovery of the economy.

One aspect of investment not addressed directly by measurements through stock exchanges is real estate. Recently there was a fall of the housing market for varied reasons. One might believe real estate is not a good option after seeing the hard effects of the foreclosures and mortgage failures of the last few years but that belief is improper. Real estate, unlike public corporations, will continue to be valuable over time.

Real estate can be improved upon, rented or sold. Every individual needs a place to live or to conduct work which requires space. Land is a solid investment. If one does not look solely at monetary value, land once paid off eliminates a large living expense allowing for more liquid cash available for immediate use. In fact, once land is paid off and its owner starts to rent it out the land becomes a source of income. In all perspectives assuming the land is in a desirable location real estate is a very useful, stable investment.

While the housing market has recently been brought low by the economic crisis this is not necessarily a bad event for an investor. An observant investor might take the opportunity to acquire land or houses for a very low price and then sit on their investment as the economy recovers. The investor could then flip the property for a profit or rent it out for a tidy income. The housing market crisis is affecting refinance rates for house loans which can also be a beneficial situation for any investor.

While the U.S. economy might still exist in a crisis state for many years yet as government tries to manipulate forces to improve it, the individual investor could still turn a tidy profit by focusing on real estate. Global events and fiscal policies not withstanding, people always have a use for real estate which works to an investor's advantage.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Economics Markets Trading Ideas

 

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