Is it Time to Get Back into the Investment Pool?
Investments
All indications are the recession's crawling toward an end. Some say the recession ended this summer when job losses slowed. Whether you're glass half-empty or half-full about how liquid our economy is, the question now is how to invest the money you saved during the recession when you expected the worst might hit.
For those who avoided the worst, such as job loss, now is the time to let your money work for you once again.
Before jumping into dark waters, here's a lay of the lake. Risks lurk beneath, but understanding the threats can help you navigate them.
The water's still murky and unsteady
The recession appears to have ended for the time being. How long will it stay that way? Nobody knows for sure. Prognosticators will say several months, years or even a decade or more. Naysayers say that because Americans didn't fundamentally change the way they save and the way they consume, this recession will be a blip compared to the struggles in the future.
As a result, investing is a still an at-your-own-risk game.
The success you experience in the stock market will be the product of how much economic growth America sees over the next few months and years. This will be the best indicator of how deep you should go.
Underwater housing market
If the recession taught average people one thing it was the real estate industry is almost as central to the banks as the banks themselves. The unsteady housing market will not change overnight. Therefore the banks still reeling from real estate inflation, foreclosures and declining home construction will not see marked improvement for some time.
However, foreclosures will decrease once job losses slow. Many homeowners swam too deep in debt over the last decade and that will even out as homeowners find more affordable homes and work out deals with lenders.
Home construction will rise once again and the real estate market will stabilize and thrive again.
How soon, nobody knows.
Murky spending
The amount of savings consumers had during the recession is among the highest in decades. However, most believe that is not a fundamental shift in consumers, but a temporary choice in response to higher oil prices and the recession. Once consumers start spending again the economy will benefit. The key to watch out for is the imports and exports. To stabilize the American economy, the U.S. needs to rely more on domestic product and exports and less on imports.
Will lenders jump in?
Consumer spending is as much a product of lending as anything else. Interest rates are near record lows, but should rise as the economy improves. How high they'll rise will let us know how deep the water is. Lenders in the U.S. have more restrictions. Foreign lenders will expect higher interest returns. They've learned their lessons watching America try to navigate a housing bubble and deal with an exorbitant budget deficit.
As a result, lending will still be tough to acquire both in the U.S. and abroad. This will slow consumer spending and slow future economic growth. Combined with the other aforementioned factors, investing now is still a risky plunge. The key is deciding how deep you can go and knowing the risks.
