Blog | Real Estate

Benefits of Economic Booms

Now is the ideal time to learn the fundamentals of investing

Summary

• Booms are great - but they’re always followed by busts. Will you be ready

• Economic booms offer opportunities for learning and growth

• The best way to minimize risks during busts: use the booms to learn your investment fundamentals

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Throughout history, economic booms have often followed periods of innovation, favorable government policies, or recovery from economic downturns– take the roaring 20s, and the post- WWII boom as examples.

But have you ever noticed that when people are fat and happy, as they are in a boom, they tend to get a bit lazy? The feeling of living on easy street often breeds complacency and some people forget how they landed on easy street to begin with. Oftentimes, it was due to things like hard work, conducting research and getting educated on specific industries, and seeking guidance from a successful mentor. Which brings us to the point: Just because the real estate market is booming and money is coming easy, certainly doesn’t mean you should use this time to stop learning.

Focusing on the fundamentals

Let’s say you’ve never stepped foot in a kitchen. You certainly wouldn’t start off making a tricky eggs benedict dish for your first foray into cooking. You’d probably start with something more fundamental—perhaps some scrambled or sunny-side-up eggs—because they have less components and timing considerations. Once you have the fundamentals of cooking an egg nailed, you can set your sights on a more challenging recipe.

The same can be said for investing. After the housing crash and the stock market crash about 15 years ago, there were more people than ever warning that “investing is risky.” The problem was that not everyone defined “investing” the same way.

Most people think of investing as any situation where you put down money with the expectation of getting a return on your money. Unfortunately, what many people think of as investing is actually gambling. This is why so many people were burned by those crashes. Many so-called “investors” bought into the real estate market when it was hot, prices were soaring, and they invested on the hope that home values would keep rising, even taking on properties that cost more to buy and maintain than they could be rented for.

On the flip side, experienced investors who understand the fundamentals of real estate investing refused to buy houses that couldn’t cash flow, and sold properties they’d acquired before the boom for a nice profit. Now, which methodology sounds like the better plan of action?

In any kind of investing, what sets the gamblers apart from the true investors is an understanding of the fundamentals. Knowing and following the fundamentals takes much of the risk out of investing. There’s always some risk, but by sticking to sound investment strategies and planning for ways to cover the downside, the risk can be greatly reduced.

The benefits of economic booms

In addition to the security and calm that economic booms bring, there are many other key benefits:

• Job creation and low unemployment: with economic booms, businesses see increased activity that lead to more job opportunities. Additionally, wages tend to rise as companies compete for skilled workers.

• Increased consumer spending: The confidence in the economy leads to more discretionary spending from consumers; which in turn boosts industries such as real estate and car sales.

• Higher government revenue: higher business profits lead to more tax revenue. As a result, governments can use the surplus to invest in infrastructure and social programs.

These are just a few of the benefits to the economic boosts that we experience; as you can see, the boost in the economy fosters a much smoother working machine overall.

Forced adaptation

Because of the comfort they provide, economic booms can lead to a creeping complacency. It’s important, rather, to see these as times to act.

To avoid complacency during economic booms, individuals and businesses should focus on continuous learning and adaptation.

Investing in skills development ensures readiness for future challenges, while diversifying income streams can mitigate risks when the boom ends. Businesses and people alike should innovate, enhance efficiency, and strengthen customer relationships to remain competitive. Building financial reserves during prosperous times also provides a safety net for economic downturns, fostering long-term stability and growth.

Afterall, one shouldn’t forget that booms are followed by busts.

Understanding the boom and bust cycle

As you probably already know, the boom and bust cycle is an economic pattern characterized by periods of rapid growth (boom) followed by a downturn (bust).

Boom:The economy expands, driven by increased investment, consumer spending, and job creation. Asset prices rise, and confidence is high.

Bust: The rapid growth becomes unsustainable, leading to economic contraction. Investment decreases, unemployment rises, and asset prices drop.

This cycle repeats as economies recover from downturns and eventually grow again.

However, it’s important that you’re not stuck in the rat race during a “bust.” In fact, booms are when you’re supposed to jump on your opportunities to become financially literate.

Booms: the perfect time to learn

So how do you plan to spend your time during an awesome boom? Are you continuing to learn? Or are you sitting back fat and happy?

The largest risk you face is not taking steps to actively improve your financial intelligence —and thereby not building your foundation or following the fundamentals. In our fast-moving society, you must educate yourself and continue learning every day. That doesn’t necessarily mean it’s time to head back to school for an advanced degree, if that’s not something that interests you. Afterall, Mark Twain once said, “Never let formal education get in the way of your learning.”

Instead, seek out a mentor in a field you’d like to learn more about, join an investing group or club that will allow you to discuss strategies with others while getting your feet wet learning the process, enroll in free online workshops, and read as many books and blogs as you can.

By learning the fundamentals, starting small, and gaining experience, you too can become a savvy investor.