Earlier this year I visited Panama. It was a fantastic place to vacation. Beautiful beaches, interesting wildlife, lush mountains and great food. I also visited the Panama canal. It celebrates its 100th anniversary this year. Seeing this amazing engineering feat firsthand raised more questions than answers for me. I was fascinated by all the decisions and challenges that went into making the canal a reality. It turns out, Panama’s history, both recent and past, gives us interesting perspective on market fluctuations.
Market Bubbles in the 1800s
Before the United States took over the construction of the canal, the French were in charge. Because of the success of the Suez Canal many were eager to invest. A French canal company was in existence at that time but faced astronomical construction costs they didn’t forecast. According to David McCullough’s, The Path Between the Seas, “Panama stock plummeted more than 100 points in less than two weeks, from 270 francs to 165 francs.” He goes on to say, “Some 800,000 French men and women had been directly affected, the savings of entire families had utterly vanished. People who could ill afford to lose everything had lost everything.”
It is easy to imagine a similar headline in our own times. If you’ve lived through the tech bubble of the ‘90s, or more recently the real estate bubble, you can relate. Plummeting prices are nothing new and history does indeed repeat itself. Instead of trying to outsmart the market, or assume we can avoid the hype entirely, its important to have a strategy that can sustain you through fluctuating markets. Creating a diversified portfolio is prudent as well as making sure you have money set aside in an emergency fund.
Bucking the Recession Trend
Fast forward to this century and we see a different trend. Even during the recession, that we’re still recovering from, Panama continued to grow. According to this NYT article, “Since 2008 the Panamanian economy has expanded by nearly 50 percent. The canal itself, which frames the western edge of Panama City, is undergoing a $5.25 billion expansion that is expected to double its capacity and fuel even more economic growth.” There is always somewhere bucking the trend. It’s hard to predict, so owning a broad swath of investments is important.
As humans investors its easy to get caught up in current trends. We have a bias toward recent events that informs our behavior. Take a historical perspective to remove as much emotion as possible from your investment decisions. Additionally, plan ahead so that you aren’t being reactive to market fluctuations and continue to SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.