En español | It may seem as if we’re living through an unprecedented time of multifaceted challenges. We have the COVID-19 pandemic. The near-shutdown of the economy and its ripple effects on jobs, savings and the ability to pay for basic needs. Racial tensions. An election season like none other.
All of these developments add up to extraordinary uncertainty. And hardly anything unsettles prognosticators, decisionmakers and the rest of us as much as uncertainty.
But there’s reason for optimism. Look to the past and you can see that societies and economies recover from traumas such as these. The following facts can put today’s hard financial times into historical perspective — and maybe even put you at ease.
If you are worried that the U.S. economy will never recover:
- know that the 1918 influenza epidemic “left almost no discernible mark on the aggregate U.S. economy,” according to a recent paper.
The Spanish flu’s impact on the economy was “mostly modest and temporary,” report coauthors Carola Frydman and Efraim Benmelech, professors at Northwestern University’s Kellogg School of Management. The Dow Jones Industrial Average increased by 10.5 percent in 1918 and 30.5 percent in 1919. The economy even expanded modestly in 1919, as a result of war-related industrial activity. While conditions are different today, the coauthors point out that a global pandemic doesn’t inevitably lead to a grave economic recession or depression.
If your gut tells you that things will only get worse, know that your gut is a terrible economic forecaster. When the University of Michigan’s decades-old Index of Consumer Sentiment hit bottom during the Great Recession, that measure of consumer confidence was at its lowest point in 28 years. But only four months later, the economy began its longest expansion in modern U.S. history.
If you are worried that so many neighborhood businesses are closing:
- know that two-thirds of small businesses started between 1994 and 2009 shut down within 10 years.
Think the economy is undergoing a vast dieout? It’s just business as usual, so to speak. That surprisingly high rate of small-business shutdowns has changed little over time, according to the Small Business Administration.
An April 2020 study by the National Bureau of Economic Research showed that 41.4 percent of businesses had temporarily closed because of COVID-19; only 1.8 percent were permanently closed because of the pandemic. Overall, more than 90 percent of business owners thought it was at least somewhat likely that they would be open on December 31, 2020.
If you are worried that so many big companies are going out of business:
- know that only 63 percent of companies that started trading publicly between 2000 and 2009 survived for five years.
Even before COVID-19, large companies have been opening and closing at a fast pace. Most new ones tend to rely more on intangible assets such as databases and proprietary algorithms, notes a 2016 paper by two business-school professors. These idea based companies can become global players relatively quickly, but they can fail quickly, too, says co-author Anup Srivastava, an accounting professor at the University of Calgary in Alberta. Tech companies aren’t the only ones at risk of being displaced by younger competitors — think of Blockbuster giving way to Netflix, or the disappearance of Woolworth’s as Walmart grew.
Srivastava adds that the number of publicly traded companies in the U.S. fell from about 7,500 in 1997 to 4,000 by early 2020, even while unemployment was down and the economy was growing.
If you are worried that your retirement savings will never recover:
- know that Fidelity Investments’ 401(k) customers who stayed in the market during the 2008 downturn saw their account balances rise, on average, from $79,000 that year to $360,000 by the end of 2019.
Although people who got out of stock funds in 2008 reentered the market and continued to save, their average balance performed worse, per Fidelity, rising only to $276,000 by 2019. “Saving for retirement is a marathon, not a sprint,” says Eliza Badeau, Fidelity’s director of workplace investing. “It’s important to maintain a long-term approach and not make changes based on short-term events,” she explains. “Consistently contributing to your savings, maintaining the right balance of stocks, bonds and cash, and avoiding tapping your savings — unless absolutely necessary — are some of the key aspects to keeping your savings on track.”
If you are worried that your home’s value is at risk of collapsing:
- know that housing prices have been at or near all-time highs since November 2016, according to the Case-Shiller index, despite the housing meltdown of eight years earlier.
This widely followed measure of U.S. home prices — cocreated by Nobel laureate Robert Shiller — hit a then-record high in 2007, just before the housing bubble burst. Declining for the next five years, the index looked unlikely to recover. But after falling 26 percent from its peak, it began marching back up in 2012. And by February 2020, it had surpassed its pre-bust high by 16.6 percent.
Cris deRitis, deputy chief economist at Moody’s Analytics, expects home prices to decline modestly this year and fall in 2021 as the government’s support to households and small businesses expires and the foreclosure moratorium ends. “Despite these negative forces, the lower and mid-tier segments of the housing market should recover reasonably well, given demand,” he notes.
If you are worried that you’ve lost your job, or you think you might lose it:
- know that in the months after the Great Recession, the peak unemployment rate for workers 55 and older was 26 percent lower than for the overall population.
In good times and bad, the jobless rate for older workers tends to be lower than that for all workers. In the wake of the downturn a decade ago, unemployment peaked at 10 percent overall but at 7.4 percent for workers 55-plus. Even though the jobless rate for people 55 and older was 11.8 percent in May 2020, it was still slightly lower than the overall rate.
After the Great Recession, it did take some workers in their 50s and 60s longer than younger workers to find a job, points out Catherine Collinson, CEO of the nonprofit Transamerica Center for Retirement Studies. “Some people gave up, but don’t give up,” she says. “Things will improve.” After the Great Recession, she adds, surveys found that people who accepted some job after being laid off — even if they were under-employed — tended to fare better in the long run than did those who remained unemployed. “Maybe they took a job that was beneath their skills and experience,” she says, “but by virtue of bringing in income and staying in the workforce, that helped them financially and helped them improve their prospects when the employment market picked back up.”
If you are worried that nobody will hire you:
- know that people founding a business at age 50 are nearly twice as likely to succeed as those who are 30.
A recent study by MIT and Northwestern University professors and a U.S. Census Bureau economist showed that the most successful entrepreneurs are middle-aged and older, primarily because of their experience, industry knowledge, financial resources and social networks. Chances of success (defined as a sale of the business or a public stock offering) increased with age until 60.
“An increasing number of people over 50 will shift careers or start their own business. That is exactly what happened after 9/11 and during the Great Recession,” says Kerry Hannon, a career strategist and the author of Never Too Old to Get Rich: The Entrepreneur’s Guide to Starting a Business Mid-Life. In fact, the percentage of new entrepreneurs who were ages 55 to 64 grew from 14.8 percent in 1996 to 25.8 percent in 2018, reports the Ewing Marion Kauffman Foundation. “This kind of life event that we are currently experiencing can be a huge motivator to try something new,” Hannon notes.
Hope for Your Stocks
If the market is making you nervous, keep these facts in mind:
- Since World War II, following the onset of a bear market, stocks have recovered to their previous levels in an average of 4.3 years, according to the Charles Schwab brokerage.
- Reinvesting dividends during the 10 biggest declines between 1950 and 2019 would have led to regaining portfolio losses within 2 1/2 years, notes investment firm Towneley Capital Management.
- The best year ever for stocks was 1933. “Often the highest returns come right after the biggest drops,” says James Angel, a professor at Georgetown University's McDonough School of Business.
If you are worried that you won’t ever feel safe enough to go to the theater or a museum:
- know that from late 1592 to early 1594, the bubonic plague killed more than 10,000 people living in London.
It’s a fascinating bit of history: In the midst of William Shakespeare’s career, all of London’s theaters were shuttered for over a year, in an effort to halt the plague’s spread. But when theaters, including Shakespeare’s Globe, reopened, the gate receipts were huge, according to James Shapiro, an English professor at Columbia University and author of Shakespeare in a Divided America. Soon afterward, Shakespeare wrote Romeo and Juliet and A Midsummer Night’s Dream. And he continued to write plays through a second wave of the plague in 1603, completing King Lear and Macbeth a few years later. “If Shakespeare’s [era] offers any model and consolation, it’s how quickly numbers were back to normal and people were living their lives again,” Shapiro observes. “Cities bounce back, and people crave theater.”
If you are worried that you’ll never be happy again:
- know that during December 2008, 80 percent of Americans said they were satisfied with how things were going in their personal life at the time.
How you feel about life isn’t always ruled by the economy and current events. Even during the worst of the Great Recession, 47 percent of people polled by Gallup said they were very satisfied with their life, and another 33 percent were “somewhat” satisfied. Recent polls, mostly conducted before the death of George Floyd, showed mixed results. Seventy-two percent of people surveyed by Gallup from late April to early May said that they had experienced feelings of happiness “a lot” the previous day, up from 67 percent one month earlier. A survey conducted in late May by the University of Chicago’s NORC found a sharp decline in people who said they were “very happy,” but an increase, to over 60 percent, in the share of Americans who said they were “pretty happy.”
“The key to finding happiness during this time is not through social distancing but rather through distance socializing,” the authors of the “World Happiness Report 2020,” an annual survey of global happiness, wrote on March 23, when cities around the world were shutting down. “Remaining socially connected with friends, colleagues and family is crucial in finding happiness during this public health crisis.”
Kimberly Lankford, a longtime columnist at Kiplinger's Personal Finance, is the author of Rescue Your Financial Life.