A Word of Clarification
My blog post below has struck a chord with some of you. As a Vanguard blogger, I am charged with sharing my personal and professional perspectives on issues facing investors. The post, prompted by a discussion I had with a fellow passenger during a recent flight, represents my understanding of how the federal economic stimulus programs might be viewed historically. The focus is on certain macroeconomic principles and is not intended to endorse specific political leaders or parties. More importantly, my views are my own and not necessarily those of Vanguard, and they do not influence how the company manages our clients’ assets. I regret if some readers have interpreted the posting as representing a partisan point of view. Steve
Someone asked me recently about the main federal economic stimulus programs and how they might be viewed historically.
My response was simple: They will be viewed as the tools that help us avoid Depression 2.0. Read more »
The idea that you should have a cash reserve equal to three to six months of your living expenses would almost certainly make any “Ten Commandments” list for personal finance.
It might also be one of the least obeyed commandments, as suggested in a recent post by my colleague Ellen Rinaldi. I wholeheartedly agree with Ellen’s emphasis on having a cash reserve—savings stashed in a bank account or money market fund—before getting too focused on investing.
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I’ve had a hard time deciding which way the economic and investment winds are blowing, so I decided to make a list of the things I think have changed and those that haven’t.
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Is it the 1930s all over again? If that were true, it would be one very good reason to panic, sell everything, and put your money in a mattress. But it turns out that the comparisons between today and the Great Depression are (mostly) bunk.
You should know by now (if you’ve been reading the papers or the blogs) that the stock market crash of 1929 did not cause the Great Depression. Instead, the Depression came about because of a flawed economic response in Washington. As the economy cooled in the early 1930s, rising bank failures led to sharp contraction in credit. Congress balanced the budget and imposed trade tariffs. The result was a downward spiral in the economy and massive unemployment. The economic collapse led to the failure of the financial system—notably, a surge in bank failures and collapsing stock prices.
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