Pandemic. Presidential election. Trade war. Economic recession. Yikes.
The stock market dislikes uncertainty. When Google searches for “COVID” increase, for example, the S&P 500 stock market index tends to lose value.
These days, there’s plenty of uncertainty. It’s understandable if retirement investors are feeling skittish and anxious. But market peaks and dips — and the sugar highs and pit-in-the stomach lows — have happened before, and they’ll happen again.
Instead of letting anxiety steer, arm yourself now with these tried-and-true tips for staying calm and managing risk.
1. Know your comfort level
Pay attention to your stress level as you consider any investing options. Listen to yourself. Choose options that let your money grow while you feel confident and safe without courting more risk than is tolerable or wise.
Money Talks News founder Stacy Johnson, in “7 Ways to Slay Your Fear of the Stock Market,” advises against:
- Investing money you think you’ll need soon
- Investing more than makes you comfortable
- Putting money in speculative stocks — they’re more like gambling than investing
2. Spend less than you earn
If the word “sensible” sounds outdated to you, think again. It embodies solid wisdom for this unsteady time — and for any time.
It’s sensible to spend less than you make, then save or invest the rest. No matter how much you do or do not earn, this is key to financial security.
Not that it’s always easy or doable. But aim there and, eventually, get there. This way, when problems arise, you’re not on a financial edge, easily tipped into crisis.
3. Use a budget
It’s hard to save money if you don’t know what you’re spending.
A budget helps calm anxiety and gives a much-needed feeling of control. That’s because it helps you anticipate and plan for what’s coming, and it dashes cold water on dangerous magical money thinking.
Money Talks News partner YNAB (short for “You Need A Budget”) is an app that offers an easy way to track your spending and build your savings.
4. Approach marriage with eyes open
At its best, marriage can pay big dividends, financially speaking. Couples can pool resources, balance each other’s financial strengths and weaknesses, reduce the cost of overhead, and support each other to advance in the workplace — to name just a few benefits.
Divorce can undo all that and worse. It’s particularly devastating to the finances of people in middle age.
“If you get divorced after age 50, expect your wealth to drop by about 50%,” writes Bloomberg, citing an analysis of a survey of 20,000 Americans who were born before 1960. Among that age group, divorce reduces a woman’s standard of living (income adjusted for household size) by 45% and a man’s by 21%, Bloomberg says.
Enter a new union with eyes wide open about a partner’s financial life, especially spending habits, debt and use of credit. Communicating, financial planning and counseling can strengthen your union to avoid financial stress, especially from problems handling money.
If you are thinking of splitting up, here’s how to keep down the cost of divorce.
5. Have a plan and follow it
Your chance of weathering a market downturn successfully will be vastly improved by having or making a plan and sticking with it. Money Talks News founder Stacy Johnson explains how to think ahead so you’ll be ready in “Take These 5 Lessons From the 1987 Stock Market Crash.”
Finding it difficult to create or stick to a plan? Stop by Money Talks News’ Solutions Center and look for the perfect financial adviser.
6. Don’t leave money on the table
Are you lucky enough to have a retirement plan with contributions matched by your employer? If so, invest enough from your paycheck to claim all of the employer’s matching money due to you.
Ignoring this free money is a bonehead mistake made by about 1 in 3 workers. Sometimes it can’t be helped, such as when money is so tight that you simply cannot make your full contribution.
In that case, pare back contributions temporarily — from 3% to 2%, for instance. Or take a brief break. But, get back on track as quickly as possible with at least the minimum investment needed to get all of your free money.
7. Keep a sharp eye on fees
Expense ratios can put a damper on a portfolio’s growth, costing you as much as $400,000 — or even more — over a lifetime.
Check the fees you’re paying by looking at a fund’s disclosure statement, where fees are listed as a percentage. Over time, charged repeatedly, even small percentages add up to real money drained from investments.
“Are You Paying Too Much in Investment Fees? Here’s One Way to Tell” explains what to look for.
However you invest, there often is a lower-cost way to do it. Index funds are a great choice for those seeking low-cost investments.
8. Take advantage of pandemic savings
When you review your budget, look for pandemic savings you may have captured from spending less on going out, eating in restaurants, commuting to work or dressing for working in an office.
And there might be pandemic savings you may have missed. Can you make these cost reductions permanent features of your budget and direct the money to savings?
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