By no means are we completely out of the woods yet but the current recession the world finds itself in can do wonders for a personâ??s investment portfolio and for the collective investment intelligence of a nation and a globe. Many people in the US have lost their jobs, much of their retirement savings, and much of their asset base. Few people have the capital or the intestinal fortitude to reinvest, buy-up cheap property and stocks, and to really take full advantage of the bursting of the asset bubble. But knowledge is power, and there is no better teacher than failure. There are some fundamental changes that should be made in the perception and practices of the average investor that can be directly influenced and inspired by this recession.

Diversification

One of the biggest lessons learned during the most recent recession we find ourselves in is that the diversification of assets and investments could quite possibly be the single best strategy to combat a global recession. Our parentsâ?? and grandparentsâ?? generations were always adamant about diversifying their portfolio, stressing its many advantages. A portfolio geared toward pure short-term growth will likely not benefit from a high amount of diversification, because just as diversification allows for the spreading-out and averaging of losses, it also binds growth to the average amount of growth seen in the diversified assets.

Following the Crowd

Market bubbles affect those who jump on the investment bandwagon as we saw with the bursting of the real estate speculation bubble. Three years ago there were numerous hit reality TV series’ that were based on the premise that the average American could flip properties for a profit in the then white-hot real estate market that existed in almost every city in the country. Now, years later, many people have found themselves trapped by plummeting property values and bound to multiple properties. Asset losses are going to occur in a market where a bubble has formed in a very public, easy-access fashion, and then burst on the people trying to climb as high as possible on the property ladder. Just like a ladder, those with more property assets, or those higher up on the ladder had farther to fall when the bubble popped. Real estate can be a great investment, but watching for signs that the market might be over-inflated can save a person from jumping in just as the door shuts on the behind them.

Availability of Quality Credit

It’s nearly impossible to talk about the real estate bubble without talking about the credit crisis. The crisis is something that has been in the works for the past couple of decades. Americans have always been eager to get their hands on cheap credit, look at how successful the credit card industry has been since the inception of plastic money. Americans have also been great customers in the eyes of these sub-prime lenders by not paying more than the minimums on loans and racking up some serious debt. The blame for this credit crisis has recently been shifted back onto the creditors, who, many believe used predatory practices to lure and hook many consumers into less than optimal loans. But I don’t believe that the American consumer is not at all to blame. People should have been more careful with these sub-prime loans and used the age-old litmus test in deciding whether or not they could afford the rates and fees: don’t buy or sign-up for something you know you can’t afford. It wasn’t always this simple but I think that there would have been far less of a credit crisis had people been more realistic with their loans in the first place. Greed and the American Consumer way of life got in the way of logic all too often. The lesson learned- don’t buy what you can’t afford. Being more frugal is less sexy, but it allows a consumer to steer clear of debt traps and helps them to grow their investments in a more sustainable way.