Over the past year, it’s safe to say that most investors were afraid to open their quarterly statements, if they did. No one likes to see proof that they are losing a relatively large percentage of their investments, even when they knew very well that they were losing money before the mailbox was opened. The question now is; What do you do for a living? Download your investments? Do you stay still? Do you invest more money in times like this? The answer depends on your current situation, what you plan to do with this money in the future, and how far that future is.
Assuming we’re talking about average investors saving for retirement, that future should be at least ten years from now. Ten years is that magical period of time in which financial experts say investors can hold their assets in relatively risky investments and not be hurt if a recession occurs during that time. If retirement is ten years away, then the transfer of assets to less risky investments must take place during those ten years. It is also advisable to speak with a financial advisor as you approach your designated retirement age. For the rest of us, fifteen or forty years before we strike that clock for the last time, we have some planning to do.
As mentioned above, your current situation will affect your investment strategy. With so many people losing their jobs, investing money in a retirement account may not be an option. If you are one of the unfortunate people who has lost your job and is having a hard time finding a new one, it is understandable that you will not be investing new money in a retirement account. An emergency account is helpful during these times, but since many people don’t have one, it can be tempting to take money out of your retirement account. Try to minimize this if possible. Racking up some debt during this time may be better than depleting your savings, but feeding and housing your family should be your top priority.
If you are lucky enough to still have a job, but are concerned that your position may be in jeopardy, you may want to adjust your investment strategy. Focusing on an emergency account should be your number one priority. Most financial experts say you should have enough money in your emergency account to cover at least six months of expenses if you lose your job. However, it is advisable to continue investing as much as possible without hurting the contributions to your emergency account. If your emergency account is where it should be, keep investing as much as you can on a regular basis. This same strategy would apply to people who have a job and feel that their job is safe.
To answer the question at the beginning of this article, what to do? The answer is; Don’t dump your investments, sit still, and if possible, keep putting more money into your retirement accounts. Unless you’ve seen this recession coming and took your assets off the market before losing some of them, there’s a lot of money to lose if you take it out now. Since you can only use $ 3,000 a year of those losses as a tax deduction, it’s not worth it. This country has been through a depression and many recessions, and if you kept your money in safe investments during those tough times, you would always get by in the long run. This current recession is expected to last two years, which would be the longest recession in US history. Using the ten year rule, you will have eight years to get your start back and make your money grow at a much higher rate than a certificate of deposit or your mattress.
Investing as much as possible during this time is smart due to the low cost of stocks at the moment. The shares are at least half the cost they had during the economic recovery. This means that you get two shares for the price of one. And when the economy turns around, which will happen, you will be satisfied with your profits again.
So when you approach your mailbox on March 5, relax and take comfort in the fact that tough times won’t last forever. If the losses bother you so much, don’t open the envelope. And for years to come, you may find yourself running to the mailbox to see how much your earnings are.