It is generally a bad idea to make important decision under duress, unless it really is urgent. Sometimes people get a sense of urgency for something that should be well thought out.
For example, think about when there is a housing mania. The prices are going up at a much faster pace than price inflation. A house that is listed for sale might get multiple offers that are actually above the listing price.
Now think about someone who doesn’t own a house but wants to own a house. They might get a sense of panic. If the prices keep going up 10% or 20% per year, they will never be able to get into a house. I have heard people say that they need to buy now before it is too late.
You should never feel rushed into a making a decision like this. It will end up being a bad decision. At the same time, you also don’t want paralysis where you avoid ever making an important decision. Of course, not making a decision is making a decision. If you never actually make an offer on a house, that is making a decision.
The point is that you should give yourself time to make important decisions. This is why it is generally a bad idea to rush into a marriage.
Decisions in Advance
There are some people who think America is facing financial disaster. They are probably correct. It just depends on how much of a disaster it is.
If you think we are headed for financial disaster, or even if you think there is just a decent chance of it happening, then you should prepare accordingly.
It doesn’t make much sense to throw up your hands and close your eyes and hope for the best. You don’t want to say, “I’ll deal with it when the time comes.”
Sure, you will have to deal with it when the time comes, but it will be far easier to deal with it if you somewhat prepare in advance.
This certainly includes your investments and personal money matters. If you think the stock market is going to crash by 80%, then you obviously want to diversify out of stocks.
But I believe that being mentally prepared is incredibly important and often overlooked. I have talked (written) about this regarding recessions. Just knowing and mentally preparing for a coming recession will put you ahead of most people. It becomes a lot less painful when it hits.
If you are living the good life and ignore any threats of a recession, it will be far more painful when it does hit. You may be forced to adjust your lifestyle in a dramatic way.
It is like anything in life. If you keep your expectations in check, then there is less disappointment. This doesn’t mean being an eternal pessimist. It just means living in reality.
Life Goes On
One problem I see for people who are trying to prepare for financial disaster is that they get too wrapped up in the hype, and they make bad decisions that go too far.
For example, think about someone who actually predicted the 2008 financial crisis in advance. Let’s say that someone had a crystal ball and could see the general trends in the economy ahead. They knew the banks would be in big trouble. They knew that some financial institutions would be going under. They knew that the stock market would crash.
If they didn’t know any more details than that, they might have pulled all of their money out of the banks. But in retrospect, this wasn’t necessary. Anybody with an FDIC-insured bank account didn’t lose their money. The government isn’t good at keeping promises, but it has definitely been good at keeping this promise in order to keep the banking system functioning.
(I fully understand that the government causes much of the disfunction in the banking industry in the first place.)
Also, someone with a crystal ball might have seen the stock market crash in 2008. But let’s hope they had a crystal ball that could see in the future past March 2009 when stocks hit their bottom. If you had bought U.S. stocks in March 2009, you would have done very well up to this point 16 years later.
The point is that life goes on. Most things keep functioning and humming along. The stock market still functions. Even when it crashes, most stocks typically come back. If you are buying a diverse group of stocks (an index fund), you won’t get hurt by a few really bad stocks. As long as the overall market recovers, then so will your fund.
Don’t Overdo It
I say all this because some people take extreme actions as if civilization is coming to an end. The problem is that it costs them a lot of time and money.
It’s always possible that we could have a zombie apocalypse. There could be a major nuclear war. There could be a major breakdown in the division of labor. If we get to that point, then it will not be much a world to live in. Even if you have food stored and a getaway shelter in the woods, you still might not last long.
It is better to prepare for a less dramatic situation that is still tough. If you think we are going to have 20% price inflation and some supply shortages, that seems to be a more realistic outcome. If you buy some extra necessities in bulk ahead of time to ease the burden, then what’s the worst (best) that will happen? We only get 2% inflation and you use up the extra paper towel and toilet paper that you bought before. You still might have saved money.
It is a bad idea to make life-changing decisions for things that are highly improbable. I am talking about someone who takes all of the money out of their bank account to buy gold, bullets, and food. By the way, the gold won’t do you much good if there is truly a breakdown in the division of labor.
I have read about people making some crazy decisions. They get it in their head that some event is going to happen, and they go completely overboard in preparing for it. This tends to go especially poorly for a man who is married. Guess what? Your wife doesn’t want to live off the grid in the woods.
I know the U.S. government is soon headed for $40 trillion in debt (not counting the unfunded liabilities). I know price inflation is still alive and well. I know we had an inverted yield curve in 2023 and 2024. I know we have an Everything Bubble that could pop at any time.
Still, life goes on. We will most likely continue to have electricity and the internet. We will still have a somewhat functioning banking system. The stock market isn’t going away, even if it crashes by 80%. People will still buy and sell houses, even if interest rates are at 15% and there are a lot of foreclosures. People will adjust.
Prepare smartly. You can buy into the hype of financial disaster to a point, but life will most likely go on.