I had reserved my second blog post for sharing more about me and where am I starting from in my Financial Independence journey. However, an event much more important has occurred which may impact almost everyone planning for their FI.
Last week on Friday, the long term interest rates on US Bonds fell lower than the short term interest rates. This event, has been a precurser, to every recession in US in the last 60 years. Naturally, this has triggered a recession risk with analysts guessing that a recession is imminent in the next 6-24 months (thats a very wide range of time!!).
As the warning has been triggered, there is already a slight panic and selloff has intensified, across the globe. At the same time some academics and analysts are trying to cull the panic to say that this has not happened consistently for a longer period of time and may not mean a recession is near.
In any case, lets assume that the predictor will hold and we are heading towards the cliff. This means that the market should head for a correction of 20-40% at its worst. This will dip the stocks or index funds invested by this community of Financial Independence aspirants.
Lets look at the illustration below, the VTI was trading at its highest in 2007 (just before the last recession at 74.5 US$ and it fell down to 46.11 US$ on 17 October 2008, and then further to 34.06 US$ on 6 March, 2009. It then needed almost 5 years to reach its old heights in 2013.
The question now is, is it a good time to sell and make profits OR it is just wise to stay on track and not blink as we hit the iceberg?
Its impossible to predict when will the recession risk will or how deep will it be. In the end one needs to think on our feet and act accordingly.