Chicago, IL (Vocus) August 31, 2009 -–
In this decade, US citizens have witnessed many booms and busts, such as the tech bubble, the housing bubble and the “treasury bubble.” With each, there is a common pattern, starting with cash today and typically ending with a lesson to be learned. CashToday.org warns against risky investments and paying for them with a cash advance or payday loan.
The largest bubbles seem to grow during times of rapid innovation, leading some to believe anything is possible. This is evident in the tech bubble and the creative banking in the housing bubble. The second phase that is evident is an enormous amount of people jumping on board, pushing prices up. This is evident in crazes from small items such as beanie babies to larger purchases such as a home mortgage. People would pay hundreds of
dollars for a $5 toy or hundreds of thousands of dollars for a hundred thousand dollar home.
This step is where some people will take out a cash advance or payday loan to invest in a craze that may not pay off. The trick is looking for warning signs. Many will ignore the number one warning sign, which is climbing prices to outrageous numbers - that are sure to fall. Following this step is greed.
When this step begins, common sense is suspended to continue the craze. A warning sign in the housing market is when people could take out loans without producing any information on how they would pay for the mortgage. Another would be investment properties that did not require the buyer to pay any money down.
The final stage is the burst and, hopefully, the life lesson. No bubble can grow too big with out eventually bursting – as it did for the housing market, the financial sector, and even beanie babies. The trick is to recognize a bubble when it is beginning to grow and not getting wrapped up into it. Investing for the long term, such as five to 20 years, is much safer.