Whether The U.S. Economy Is In Recession Or Not, Maintain Your Perspective

Some believe the U.S. economy is already in a recession, while others point out that the definition of recession is two consecutive quarters of negative GDP growth which has not yet occurred.

Regardless, with healthcare, food and crude oil prices spiking, the average American is not as well off as he was last year. So how should you approach the current U.S. economy?

U.S. Economy’s Cycle

First of all, remember that our economy is cyclical, punctuated by highs and lows along the way.

And when it comes to recessions, they typically last approximately six to eighteen months. So no matter whether you believe we entered recession at the beginning of the year or are about to, we should be out of it by 2010.

Don’t get me wrong… I’m not trying to minimize the pain that consumers might be feeling now, or will experience in the next year. I’m simply saying that the US economy and consumers have endured many times of upheaval before and have survived. This situation will improve again. It just takes time.

In the meantime, here’s what you can do to combat it:

Simple Tips For Surviving The U.S. Economy

I’m not saying you should just let the current situation blow over without taking action. Of course it’s important to prepare for tougher times. In the investment world, for example, follow these simple tips:

–Make sure your portfolio is well diversified among different sectors and industries. Given that the economy is weaker, pay particular attention to sectors that generate plenty of repeat business, no matter what state the economy is in. As I’ve noted here before, the healthcare sector is a good investment during a weak economy. And follow our other recession-beating tips.

–Add to that diversity by having foreign investments whether stocks, bonds, etc.

–Ensure that your money isn’t too heavily invested in one particular area. In other words, make sure you employ the proper position sizing.

–With investors more nervous and the stock market more susceptible to shocks, it’s imperative that you don’t let your investments evaporate, just because of one piece of bad news. You can avoid big losses by using trailing stops on all your positions.

Focus On The Big Picture

My father in-law went from being a kid in an upper middle class home to a teenager that occasionally had to swipe an onion or turnip from a nearby farm in order to survive. From a young man in a refugee camp to an entrepreneur.

From the owner of a successful business to a man who lost his business to a fire.

He’s had his ups and more than his fair share of downs. But he gets the big picture. Despite the bad times, he’s seen his kids get married, taken his family on overseas trips and laughs heartily when my daughter gives my wife a hard time (just like my wife did to him years ago).

Just like life, economies move in cycles through highs and lows, so it’s important not to get caught up in the daily headlines, which do little else but create fear.

Do what you need to in order to take care of yourself and your family. Prepare and respond accordingly and remember that this too shall pass. It may take six months. Or maybe it will be two years before the economy is on surer footing. But in time, this period of economic upheaval will be another life lesson. And what you take away from it will be a matter of your perspective in the future.

by Marc Lichtenfeld, Senior Analyst
Smart Profits Report

Today’s Smart Profits Notes:

Pump relief? If you believe the Energy Information Administration (EIA), there could be some much-needed relief in sight for Americans at the gas pump but not for another couple of months, though. The group said today that gasoline prices will peak at a national average of $4.15 a gallon in August. However, believing these guys isn’t easy at the moment, given that in May, the group projected a peak of $3.73 this month. Oops! Just goes to show that making predictions in the oil or gasoline markets is a really tough task right now. For what it’s worth, the EIA says gas prices will average $3.78 a gallon this year and $3.92 in 2009. We’ll believe it when we see it and so too will American consumers, according to the latest poll…

A CNN/Opinion Research survey released on Monday shows that 86% of Americans are merely waiting for gas prices to hit $5 a gallon this year. That’s a huge jump from 28% who believed that in May 2007 and 78% in April this year. As a result, two-thirds say they plan to drive less and 71% stated that they’re considering buying a more fuel-efficient car.