It was the greatest and also the most extended economic downfall and recession in the history of the modern world. It started with the United States market crash of 1929 and did not actually end till the year 1946, which was after World War II. Historians and economists all over the world often cite that the ‘Great Depression’ was also the most catastrophic economic situation in the history of the 20th century.
There was actually a short depression which lasted from 1920 to 1921, and this one is actually known as the ‘Forgotten Depression,’ where the United States stock market fell by almost 50% and also corporate profits declined over 90%. The U.S economy enjoyed some robust growth when the rest of the decade knocked on the door. The era came to be recognized as ‘The Roaring Twenties,’ and it was a period when the American public found out about the stock market and decided to dive in head first.
Here are a few notable bullet points to remember:
- The Great Depression was the longest and greatest economic downfall, recession, and crisis in the history of the modern world.
- In the year 1929, there was a market crash that wiped out a great deal of nominal wealth for businessmen and individuals of all kinds.
- The American public actually began a whole frenzy where they started investing in the speculative markets in the 1920s.
- Many factors contributed to the Great Depression. Factors like inactivity, which was followed by over-action by the Fed.
- Presidents Hoover and Roosevelt tried mitigation of the impact of the depression with the use of some government policies.
- Neither the beginning of WWII nor the government policies can be credited single-handedly with the ending of the Great Depression.
- Trade routes which were created during WWII actually remained open and also helped greatly so that the market could recover.
- Finally, the Great Depression was actually the result of some unlucky combinations of factors- a FED that was flip-flopping, protectionist tariffs and also inconsistently applied efforts by the government interventionists. It could have even been avoided or at least shortened by a change in any of the above factors.
- The debate still remains to this day whether the interventions were actually appropriate, and many reforms from the New Deal-like social security, insurance for unemployment and also agricultural subsidies which exist to this very day. An assumption that the federal government should actually act when there is a national economic crisis is undoubtedly strongly supported. This kind of legacy is actually one of the reasons the Great Depression is actually considered as one of the seminal events in the history of the modern United States Of America.
The method that scarce resources get distributed with an economy determines the exact type of economic system that it is. There are mainly four different types of economies, and here they are:
- Traditional economy- Command economy- Market economy- Mixed economy
When we look at each economy individually, we realize that each of them has their own strengths and weaknesses. Now let’s take a closer look at each of them in brief depth.
Traditional economic system:
It is the most traditional and also ancient types of economies on the entire planet. Vast parts of the world still function under this conventional economic system. These areas actually tend to be rural or even second to third world places which are not developed completely, or they have not started getting metropolitan either. These places are closely tied up to land and mainly by farming. Generally speaking, there will be almost none to little surplus in this type of economic systems. Each member of the traditional economy has a specified and also pronounced role, and these societies tend to be very close-knit and very socially satisfied. They also lack access to advanced forms of medicine and even technology that they can use.
Command economic system:
In a command ecosystem, a considerable part is controlled by a centralized power. Since the government is a central feature of the entire economy here, it is often involved in all sorts of planning and distribution of resources kind of activities. A command economy is completely capable of creating a healthy supply of all of its resources. It also rewards people with all sorts of affordable prices.
Market economic system:
In a kind of free market economy, households and firms act in the form of self-interest to determine how the resources get allocated and what goods get produced, even who and all buy these goods. This is completely in opposition to how a command economy works, where central governments get to reap and keep the profits. It is known that there is no government intervention when it comes to a pure market economy. No TRULY free market economy exists at all in the world. In this economy, the market and the government are separated. The separation prevents the government from becoming all to powerful and also keeps their best interests aligned with the markets.
Mixed economic system:
It is a combination of different types of all economic systems. This system is a perfect cross between a command economy and a market economy. When it comes to very common types of mixed economies, the market will surely be more or less government ownership-free except for a few key areas, when it comes to transportation or even sensitive industries like railroad and defense. The government may be involved in the regulation of private businesses.
If you have thoroughly no experience in investing on your own, getting started and being successful will undoubtedly be somewhat intimidating. It can also be quite difficult to determine, the amount of money should be in stocks and other types of investments. You should also see what kind of stocks you should look for and also be on the lookout for whatever kinds of rookie mistakes that you may make and avoid all of those. With all of that in mind, here is a list of 10 things all amateur investors should consider and keep in mind.
1. You should decide how much of your portfolio should be in stocks. There is actually no rule that is set-in-stone, but generally speaking as you get closer and closer to retirement, you should actually reduce your exposure to stocks because you will want to preserve your capital reserves. There is also a rule of thumb which you should follow; it states that you should take your age and deduct it from 110 to get the percentage of your portfolio that you should actually spend in the stock market and also the stock of your preference.
2. How many stocks should you actually purchase? If you just want to buy individual stocks, then you should buy at least 15 different stocks across a lot of different industries because you will want to diversify your portfolio. This might not exactly be practical when you are just starting out. An alternative that you can exercise is buying a lot of individual stocks and to invest the majority of your money into index funds and then buy 1-2 stocks with the rest. This will eliminate any guesswork and also allow you to get experience while evaluating stocks.
3. You have to choose between individual stocks and also index funds. An index fund actually allows you to invest in a lot of stocks by purchasing just one investment. For a good example, an index fund will give you exposure to all of 500 stocks in that particular index. Index funds are actually excellent tools to properly diversify your portfolio and also reduce risk at the same time. If your money is actually spread across hundreds of stocks and one stock crashes, then, the impact to your portfolio will undoubtedly be minimal and negligible.
4. How much profits can actually be expected? It is greatly advised that new investors take a long term view of the markets and not get disheartened when and if they don’t get a whole lot of profits when they start out. In any kind of given market, it could actually gain and lose a substantial portion of its value. We should be ready for anything and be steady.
A recession as we know is a period of negative growth in an economy. There are also higher rates of unemployment, falling wage rates, and also governments borrow more money. As we know, it has been more than 6 years since the end of the Great Recession, and we will not forget about it for years to come. There were a plethora of lessons to be learned from that by investors who were swept correctly away by a panicking herd only to witness their retirement accounts be devastated by almost 50% of overall loses. In the year 2016 a lot of people know that if they just held on, all their accounts would have fully and completely recovered and gone on to double in value properly. When it comes to a recession, you should know that the recovery will include a strong rebound in the stock market. We should also know that investors don’t exactly have to sit idly as all their portfolios get thoroughly pummeled by the massive selling. There are indeed some investment strategies which can take advantage of the recessionary forces and can position your portfolio for a quicker, stronger, and back to normal or better rebound.
These are the ones that benefit from a recession:
- Companies which are dealing with complete and utter bankruptcies and IVF.
- Companies that have a lot of debt problems.
- People who make use of physical means of paying money (cash) for goods and also pawnbrokers.
- It is also said that bookmakers and publicans do really well in a recession because people prefer to drown their sorrows while gambling and also intoxicating themselves. So you could say that bars and pubs also benefit from a recession, but who are we kidding? They are always successful and are always filled with people.
- Firms that are selling all kinds of inferior goods. Second-hand stores have been known to take advantage of a recession.
- Analysts and also, economists get to talk about recession and also talk about how to get out of it; people will heed to their advice, and the analysts and economists get to make off of this.
- The falling prices of assets can surely make it cheaper to buy a house and is amazingly perfect for first-time buyers.
Invest in consumer staples: Even during recessions, people need to buy food, clothes, drugs (pharmaceutical) hygiene products and also medical supplies. These are the consumer staples, which are the last items to be cut from the family budget. So while companies that are selling things like consumer tech are likely to have a drop in revenue, companies which are selling necessities like food products will not experience this.