Preparing for Armageddon

“The world feels like it’s falling apart … What should I do to prepare for Armageddon?” asked a podcast listener. Given the fighting in Syria, anti-government protests in Hong Kong, the down-to-the-wire fate of Brexit, the expanding U.S. impeachment inquiry, and the ongoing trade conflicts between the U.S. and China, the U.S. and the European Union as well as South Korea and Japan, it’s easy to understand why people are worried about the current state of the globe.

In fact, data may back up your anxiety. Starting in 1996, three researchers from the International Monetary Fund and Stanford University created a quarterly World Uncertainty Index. The work focuses on 143 countries and tracks the frequency of the word “uncertainty” in the Economist Intelligence Unit country reports. Not surprisingly, there were spikes in the index for major events such as the 9/11 attacks, the SARS outbreak, the second Gulf war, the European debt crisis, the European border crisis, the UK Brexit vote and the 2016 U.S. election.

While the current trade wars pale in comparison to those aforementioned events, they’ve had a similar effect on anxiety levels. The report notes: “Globally, the trade policy uncertainty index is rising sharply, having been stable at low levels for about 20 years … Based on our estimates, the increase in trade uncertainty observed in the first quarter of 2019 could be enough to reduce global growth by up to 0.75 percentage point in 2019.” The International Monetary Fund has predicted that global growth this year will be 3%, the weakest since the financial crisis.

Of course, 3% is a whole lot better than the negative 0.1% in 2009, but uncertainty has begun to affect sentiment. Despite a 50-year low in the U.S. unemployment rate and a still-growing economy, half of Americans now say they are worried a major recession is coming, and 48% say they are worried a big market crash is on the horizon, according to the latest Allianz Quarterly Market Perceptions Study. These results help explain why the question about Armageddon keeps cropping up.

On a rational level, we know that exogenous events are out of our control, but that doesn’t stop us from wondering how we might exert a little power or agency to soothe our frayed nerves. The easiest place to start might be your retirement account. A friend recently told me: “I’m thinking of moving all of my 401(k) out of stocks until the worst of this passes. At the very least, I can’t get hurt hiding in cash, right?” WRONG! As I have argued many times, trying to time the market is a fool’s errand. Of course, that doesn’t mean that you should ignore your investments, but there’s a big difference between rebalancing a retirement account to make sure that it is diversified and going to 100% cash.

If you are really unnerved, the place to do something is not in your portfolio but in other areas of your personal financial life that you can control. A recent Bankrate survey found that 60% of respondents feel very or somewhat prepared for the next recession — and the likely reason is that they are taking constructive steps to prepare:

44% are actively spending less money, 33% are saving more for emergencies, 31% are paying down credit card debt, 15% are saving more for retirement, and 10% are looking for a better/more stable job. Of course, all of those actions are important whether or not a recession comes within the next year, but if fear is your motivation to do the right thing, that works for me.

Jill Schlesinger Jill on Money