Economy and that scary "R" word

[mheisig]

Kevin Hassett of the American Enterprise Institute had an interesting checklist of sorts in the Washington Post, well worth a read:

1. We're already in a recession. The truth is, nobody knows. It takes a while for the data to come in. By the time the National Bureau of Economic Research announced the 1991 recession, it was already over.

2. The stock market tanks during recessions. Actually, stocks usually drop before a recession. Then, the market tends to look ahead and starts responding favorably to the expected end of a recession.

3. Recessions used to be a lot worse. For the most part, recessions before World War I and since World War II have been just about equally severe. As for duration, the average recession since World War II has lasted about a year.

4. Recessions are bad for your health. The reality: Americans get healthier as the economy gets worse. With more free time and less money on their hands, people tend to consume less tobacco, exercise more, prepare healthier meals, and lose weight.

5. There is a regular "business cycle." The truth: Economic fluctuations are anything but regular. In the nine recessions since 1949, the shortest time between two recessions was only nine months. The longest period between two recessions was almost ten years.

If you're worried about the market, keep in mind that prices will almost certainly be higher five years from now. If you look at your "stock money" as "five year money," 95% of the time, stocks' five year average annual returns fall between -0.8% and 26.0%.