Historical Perspective Helps Deal With Fears of Economic Downturn

The American economy is suffering, the stock market is hurting — but the sky is not falling.

The old adage which says that those who ignore history are doomed to repeat it is only part of the story, because the value of learning history goes far beyond simply avoiding present and future pitfalls based on past pitfalls. History is more than a record of wins and losses. It is a point of view or frame of reference for measuring the present.

This value of learning history helps us understand the importance and impact of present events. That historical frame of reference through which you view daily life is called “historical perspective.” Historical perspective at its best means looking at the present and planning for the future as parts of an unbroken chain or timeline of events.

In recent weeks, the U.S. stock market and stock markets worldwide have fallen drastically. Investors and media financial analysts suggest that this is a sign of the economic recession settling in on the American economy. Some of them are starting to make public warnings that this might be a good time to take money out of stocks and place them in less volitale investments.

But recessionary trends hit America’s economy in 1981, again in 1988-89. The stock market, too, took some hard shots in those same years, and suffered a spectacular plunge 1987. Despite those economic “hard times” and recession, America’s economy recovered and flourisehd in the 1990s. The stock market itself recovered, set record highs, and created millionaires, even billionaires, through stock investments in the 1990s.

Without the historical perspective of the 1980s and 1990s regarding America’s economy and stock market, today’s investors might well abandon hope, see this situation with a “sky is falling” alarmism, and jump ship. Yet history demonstrates, in the examples above and throughout many decades before, that investing in America’s stock market and “betting on” America’s economic strength has always paid off.

Go ahead, take your investment money out of that sealed coffee can buried in your backyard, and reinvest it. America’s economy will bounce back. Stocks will always be the best long-term investment you can make. History demonstrates it.