I looked.
It wasn’t pretty.
My 401(k) is down – way down. But how could I not look at my retirement portfolio with the constant reminders about Wall Street’s woes?
China’s stock market is also tanking. Oil prices have fallen. So have housing starts.
Last Wednesday, David Joy, chief market strategist for Ameriprise, noted: “The S&P (500 index) now sits 12 percent below its May [2015] peak, the NASDAQ is down 14 percent, and the Russell 2000 is in bear market territory, down 22 percent.”
Man, what isn’t down?
It all reminds me of the scene in “The Wizard of Oz” when Dorothy and her crew, frightened out of their wits, chant, “Lions and tigers and bears. Oh my!”
So what are we investors to make of all this? What can you do?
Although I don’t want you to freak out, concern is an appropriate response. This is money you’re counting on being there so you can retire comfortably or put your child through college without debt.
And let’s be real: Many of you don’t completely understand how all this works, do you?
You might not even know what you’re invested in. If you do know and you’re heavily invested in stocks or funds with stocks, you might be wondering if you should flee to the safety of bonds. But wait. You probably have heard that if you panic and pull your money out and the market soars, you’ll be kicking yourself one day. Or maybe, you’re remembering some pundit saying times like this are similar to a big holiday weekend sale and an opportunity to buy.
Let me tell you how I handle these inevitable ups and downs when it comes to investing.
I remind myself that we’ve been here before. And what typically happens after is what you have to cling to. Yes, past performance doesn’t guarantee future returns. But some of you, who ran for the hills, yanking your money out of the market during the last economic crisis, didn’t benefit from the gains that followed. You panicked and locked in your losses.
Clearly, if you need your invested money in the next few years, you may need to get out. But if you’ve got a long horizon, a diversified portfolio and too much to do to be glued to reports of the market, don’t panic. Besides, you cannot time the market.
So what should you do with your time?
A reader gave me an idea. I have a feature called “Talk Back.” It’s an opportunity for you to weigh in on topics I’ve covered. In a recent column, I answered someone’s question about creating an emergency fund. I mentioned that my husband and I have saved aggressively and accumulated about a year’s worth of expenses.
“In our experience, having a rainy-day fund of the magnitude that you suggest did not come about until we were well into our 50s,” wrote Harold Brown from Texas. “A year’s salary set aside for a rainy-day fund seems to me to be too much for people to really have set aside.”
Brown suggested that I come up with a rainy-day goal for people at various income levels. I like the suggestion because it’s a much better use of your energy than worrying about the stock market. So here are some general guidelines:
• Earning $20,000 and below in income: Aim to save at least $500 in a life-happens fund for unexpected expenses, and eventually build an emergency fund – which you are not going to touch unless you have a major disruption in your income – that at least covers the major expenses: food, housing, utilities and transportation. Right now, get into the habit of saving. This is a baseline goal because I don’t want you to put too much pressure on yourself.
• Earning $30,000 to $40,000: Try to save at least $1,000 in your life-happens fund and two months of living expenses. Push yourself financially.
• Earning $50,000 to $75,000: Save at least $2,000 in your life-happens fund. For now, it’s OK if you’re only able to get to three months of living expenses.
• Earning $75,000 or more: You can challenge yourself. Your life-happens fund could reach $3,000 or more. And go for four to six months of living expenses in an emergency fund.
When the stock market is making me nervous about my investments, I find solace in making sure I’ve got my other money straight. So spend some time now concentrating on what you can control.
Michelle Singletary can be contacted at:
michelle.singletary@washpost.com
Twitter: SingletaryM
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