Is There a Risk of an Economic Bubble?

A “bubble” is an instance in which prices and values grow significantly in a short amount of time only to “burst” and deflate in value quickly. Perhaps the most recent evidence of a bubble occurred in 2007 and 2008 in the US when the housing market collapsed. The Canadian housing market’s recent incredible home value growth is an example of a could-be bubble, some believe. Some claim we’re in another economic bubble right now economically. Is it true? Perhaps most importantly, what can be done to protect you in such instances?

The economy is improving. Interest rates are low. Home prices are on the rise. And, the stock market isn’t doing too badly in most cases. Yet, an economic bubble signifies a risk that it is all going to collapse in the laps of citizens. But, the fact is, you can prepare for these worst case scenarios.

Tips for Protecting Your Finances

There are several things you can do to minimize the risk a bubble can have on your individual situation:

  • Have a savings account with at least three months’ worth of expenses in it.
  • Consistently work to better your skills so that you remain highly valuable within your career.
  • Put in place the proper insurance policies to keep your personal and business needs in check (some policies may help cover your mortgage, for example, if you lose your job through no fault of your own).
  • Invest wisely and only to the level of financial risk that you can tolerate. Use a professional to help you evaluate that risk tolerance.
  • Invest in a home that’s well priced, within your budget, and through a mortgage that’s affordable to you. Plan to remain in your home for five years at least to break even.

Even if economic bubbles come and go – and our history shows they will do so many times over – you can protect your own investments with the proper planning.

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