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“The world feels like it’s falling apart, what should I do to prepare for Armageddon?” asked a podcast listener. Given the fighting in Syria, anti-government protests in Hong Kong, the down to the wire vote on Brexit, the expanding U.S. impeachment inquiry, not to mention ongoing trade conflicts between the U.S. and China, the U.S. and the European Union and South Korea and Japan, it’s easy to understand why people are worried about the current state of the globe.
In fact, data may back up your anxiety. Three researchers have created a World Uncertainty Index. Going back to 1996, the work focuses on 143 countries and tracks the frequency of the word “uncertainty” in the Economist Intelligence Unit (EIU) country reports. Not surprisingly, there were spikes in the index for major events, like the 9/11 attacks, SARS outbreak, Gulf War II, European debt crisis, El Niño, European border crisis, UK Brexit vote and the 2016 US election.
While it pales in comparison to those aforementioned events, current trade wars have taken a similar toll on anxiety levels. The report notes “Globally, the trade policy uncertainty index is rising sharply, having been stable at low levels for about 20 years. Based on our estimates, the increase in trade uncertainty observed in the first quarter of 2019 could be enough to reduce global growth by up to 0.75 percentage point in 2019.” The International Monetary Fund has predicted that global growth this year will be 3 percent this year, the weakest since the financial crisis.
Of course 3 percent is a whole lot better than the negative 0.1 percent in 2009, but uncertainty has begun to impact sentiment. Despite a fifty-year low in the U.S. unemployment rate and a still-growing economy, half of Americans now say they are worried a major recession is coming and 48 percent say they are worried a big market crash is on the horizon, according to the latest Allianz Quarterly Market Perceptions study. These results help explain why the question at the top of this article keeps cropping up.
On a rational level, we know that exogenous events are out of our control, but that doesn’t stop us from wondering what steps we might take to exert a little power or some agency that might help soothe our frayed nerves. The easiest place to start might be your retirement account. As one friend recently said, “I’m thinking of moving all of my 401 (k) out of stocks until the worst of this passes. At the very least, I can’t get hurt hiding in cash, right?” WRONG! As noted many times, trying to time the market is a fool’s errand. Of course that doesn’t mean that you should ignore your investments, but there’s a big difference between rebalancing a retirement account to make sure that it is diversified and going to 100 percent cash.
If you are really unnerved, the place to do something is not in your portfolio, but in other areas of your personal financial life over which you can exert control. A recent Bankrate survey found that 60 percent of respondents feel very or somewhat prepared for the next recession, and the likely reason is that they are taking constructive steps to prepare: 44 percent are actively spending less money, 33 percent are saving more for emergencies, 31 percent are paying down credit card debt, 15 percent are saving more for retirement, and 10 percent are looking for a better/more stable job. Of course all of those actions are important whether or not a recession comes within the next 6 to 12 months, but if fear is your motivator to do the right thing, that works for me.