slow growth

5 Ways To Prepare Yourself For A Slow Growth Economy

by Jason on March 14, 2012

Jeremy Grantham, the well-respected Chief Investment Strategist for GMO is calling for a “slow-growth economy” over the next few years.

He expects economic growth worldwide to be around 2%.  This has numerous effects on governments and households around the globe.

We must be ready to continue on this slow-growth trajectory, and there are certainly some ways to be better prepared.  Let’s take a look at five of them:

1. Create a Tighter Budgetslow growth stock

Budgeting is usually a drag, but it doesn’t matter if it is fun or not. This is something that we need to do in order to have control over our finances.

I’m constantly amazed at our budget and how we always seem to go over in certain areas. What that means is that we need to tighten up the belt a little more and create an accurate budget to work with.

2. Get Rid of Consumer Debt

According to U.S. News, consumer credit card debt was up 424% last year over 2010!  If you are one of the consumers who racked up more debt in 2011, then you really need to read this:

STOP! 

You need to stop.  It’s that simple. Consumer debt will absolutely strangle you in the slow-growth years ahead if you do not get a handle on it.

3. Sharpen Your Skills

According to the U.S. Department of Labor, the same percentage of Americans are working as in 1980 (see chart below).

What this means is that the competition for jobs is high and you will need to sharpen and hone your labor skills even more to set yourself apart from the field.

You might want to take continuing education classes, pursue an online degree, or branch out into a completely different occupation to forge ahead in a slow growth environment.

4. Increase Your Cash Reserves

You’ve heard it said, “Cash is King”.  It’s going to be even more important in the slow-growth economy ahead.   I say that because if we are in for a slow-growth, high-inflationary period it is going to cost more to live and we won’t be earning as much income.

We may need to depend a little more on our cash reserves or emergency funds to get by.  I urge you to build your cash reserves as much as possible, as soon as possible.

5. Get Defensive With Your Portfolio

Defensive positions might prove to be invaluable over the next several years.  Unless you are an extremely bullish person, it seems like we could be in for a volatile ride.

This does not replace any personal and professional advice you should be seeking out at this time, but in general, you may want to think about things that people buy no matter what the economy is doing.  For example, people do not give up their coffee, sodas, and snacks among other things during down times.

Another defensive move might be to hedge against the dollar.  If you think that the United States debt load is unbearable, then you may want to consider defensive positions like metals, other commodities, or even other currencies.  Keep in mind that those three positions can be very volatile themselves, and you should seek out professional advice for your own situation.

What are your thoughts about a slow-growth economic environment?  Do you think the U.S. is about to turn the corner, or are we in for more lean years?

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