Having savings and investments is a vital part of achieving financial stability and well-being. But contributing money to these types of accounts can be difficult, especially in the face of rising costs and interest rates.
A recent GOBankingRates survey found that just over 56% of people saw their savings or investments drop over the past year. In comparison, only 15.40% of respondents said that their savings stayed level, while just under 8% indicated that they increased during this time. Along with this, roughly 20% of respondents indicated that they don’t have any money in savings or investments at all.
If you’ve experienced a decrease in your savings or investments, here are some things you can do to start building back up.
Evaluate Your Finances
The first thing you should do is step back and take a moment to look over your finances. Try not to stress out or panic, as this can make it more difficult to make sound financial decisions.
“If you find yourself in a situation where your savings have dropped by as much or more than 50%, it suggests there was a serious emergency,” said Young Pham, a financial advisor and investment analyst affiliated with BizReport.
Common financial emergencies include things like a major medical treatment or a sudden lost job. But even if it’s not an emergency and you simply used some money for things like a down payment on a house, you should still reassess your financial situation.
“No matter what the situation is, take a minute to carefully assess your current finances, how you have spent your money and whether you can recover,” said Pham. “Do not panic or jump into unnecessary panic selling of assets.”
Assess Your Investments and Goals
“If you see a significant decrease in your savings/investments that was not caused by a withdrawal, then it is important to review your investments,” said Kendall Meade, certified financial planner at SoFi.
Say, for example, your investments have dropped by around 20%. Meade suggested reviewing your accounts objectively rather than letting your emotions influence your decisions. That way, you won’t make any sudden or drastic changes to your investment strategy that you later regret.
“While a downturn in the economy or a plunge in the stock market can be scary, it is important to make sure that we don’t let short-term market fluctuation impact our long-term investing goals like retirement,” said Meade. “The best thing to do regardless of current market conditions is to make a plan, get invested and stay invested over the long term. In fact, a downturn can even be a great opportunity to buy or become more tax-efficient by implementing tax loss harvesting strategies.”
Cut Costs or Downsize
A common reason why people have trouble saving up money — or why they end up spending that which they do have set aside — is rising or unexpected costs.
“If you experience a reduction in your savings, and it is attributable to lifestyle choices, you need to revisit your budget,” said Thomas Brock, CFA, CPA and an expert contributor for Annuity.org. “Take a very close look at your discretionary spend and strive to reign in any excessive outlays in the following categories: travel and entertainment, clothing and accessories, furnishings, electronics and dining out.”
Besides reducing unnecessary expenses, it might be time to consider downsizing to cut costs and increase your ability to save more money.
Pham suggested, “Downsize as much as possible and start the process of rebuilding that purchasing power. If you have to move to a smaller house, sell your car for a more fuel-efficient one or even get the kids out of private school. These are all tough decisions that you may need to make to recover financially.”
Reallocate Your Investments
It’s also important to make sure your investments are allocated properly based on your timing, risk tolerance and goals.
“If you’ve seen a 51% decrease in your savings and investments, consider reallocating 25%-30% of your remaining funds to more conservative investments, such as bonds or high-yield savings accounts, while maintaining a diversified portfolio,” said Anthony De Filippis, the director at Amplify 11, a Penrith Chartered Tax Accountant firm.
“If you’ve experienced a 25% decrease, focus on rebuilding your emergency fund by saving at least 10% of your income each month until you reach your target amount,” he added.
Start Contributing to Your Emergency Fund
Having an emergency fund can help keep you on track financially, while making it so that you don’t have to draw from your investments or savings.
“Increase your emergency fund to cover at least 3-6 months of living expenses, providing a safety net for unexpected financial setbacks,” said De Filippis.
You can start small, but try to be consistent. Once you have a robust emergency fund, you can then begin contributing to savings or investments.
Automate Your Savings
Getting into the habit of regularly saving money can be tough, but it can also be rewarding. If your main obstacle is being consistent with your savings, then automating your contributions could help.
Jonathan Morales, divisional director of community and business development at Chase, suggested setting up regular, automatic transfers between your checking and savings account. “Just set the amount to be transferred, forget it and watch it grow,” Morales said. Having a savings account can “provide peace of mind to help with life’s unexpected surprises.”
Focus On Less Aggressive Investments
Meade suggested reconsidering your investment strategy if your investments have dropped by at least 40% — especially if you’ve invested in high-risk assets.
“Make sure you don’t have concentrated positions in aggressive investments. Very aggressive investments include high-risk stocks and other assets like options, futures, cryptocurrencies and so on. These investments are extremely volatile and should only make up a small percentage of your overall portfolio,” said Meade.
Having a more diversified investment portfolio can reduce risks and protect your overall assets from fluctuations in the market.
“If you have a significant amount of money in a specific stock, sector of the market or alternative investment, you may see big swings,” said Meade. “An easy way to diversify your portfolio is by using ETFs or index funds. This allows you to own multiple different companies or even bonds instead of buying them individually. However, it is important to make sure that you do not have all of your money in one specific index or portion of the market, as well.”
If your investments or savings have experienced a notable decrease, you might be tempted to sell any stocks you currently have, but this could be a mistake.
“If your savings have been diminished by an ongoing decline in the stock market, do not sell your holdings to stop the hemorrhaging,” said Brock. “Stock ownership is a long-term endeavor, and near-term ups and downs are commonplace. The average investor will experience many bull and bear markets over his or her lifetime.”
GOBankingRates surveyed 1,091 Americans aged 18 and older from across the country between Aug. 14 and Aug. 16, 2023, asking twenty different questions: (1) Have you had trouble paying your utility (gas, electric, heat, internet, etc.) bills in the last 6-12 months?; (2) Which of the following bills/expenses has been the hardest to keep up with over the past year?; (3) Have you bought a car/truck in the last 6-12 months?; (4) Have you ever been on food stamps?; (5) Have you or would you use artificial intelligence (AI) to earn a passive income?; (6) Where do you shop for the best deals on groceries?; (7) What is your current annual income?; (8) How much were you able to contribute to your savings this year?; (9) How much have your savings/investments decreased over the past year?; (10) Next year’s (2024) Social Security Cost of Living Adjustment (COLA) will be 3% instead of the 8.7% it saw in 2023. Will this affect you?; (11) What assets do you have in your retirement portfolio? (select all that apply); (12) How much money do you currently have saved for retirement?; (13) How much personal savings do you currently have?; (14) What’s the first step you would take if you were starting a small business?; (15) If given the choice between your current job and starting your own business, which would you choose?; (16) If you have any plans to start a small business, what is the timeline?; (17) How much do you currently spend on rent?; (18) How much do you currently pay monthly on your mortgage?; (19) How much has your housing (rent, mortgage, etc.) gone up over the past year?; and (20) How long do you believe it will take you to save, in order to buy a house?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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