Saving is a Lifestyle not a Strategy
I like to say saving is not a strategy but a lifestyle! At the core of being wealthy are healthy habits around spending that allow you to save what is not spent. To begin you really need to have a handle on your budget. How many of you have exclaimed, “I just don’t know where the money went!” at the end of the month. If you are unaware of what you’re spending your money on, you can forget figuring out how to save better. I would sit down with your credit card and bank statements, categorizing your spending and seeing how much you have leftover every month or what expenses you could cut to be able to save. There are also great websites and apps like www.mint.com that help categorize your spending and create budgets for you. Then I would set up automatic saving plans – like increasing your 401k deferral percentage, setting up recurring monthly contributions to an investment account, or automatic transfers from your checking to savings that coincide with your pay date. You can’t spend what you don’t have, so saving in this automatic manner soon after your paycheck hits your account will help you prioritize savings.
Based on the Great Recession What to do (or avoid) when planning for retirement would be helpful too.
The Great Recession refers to the period between December 2007 and June 2009 where real gross domestic product fell over 4% from its peak and the unemployment rate briefly touched 10%. It was a trying time that impacted many Americans, the stock market, and spurred many new policies to help the economy recover and prevent the events that led to the recession from happening again. There is much debate on how the recession could have been prevented and how it was handled, but one thing is clear – it made Americans take a hard look at their savings and habits around spending. Some lessons we learned were:
Tip 1: The importance of having a cash reserve.
Needing to liquidate your investment portfolio during a stock market correction is extremely detrimental as you are losing your ability to recover your losses during the subsequent recovery. Having a cash reserve of 3-6 months while working and as much as 12-18 months during retirement is so integral to having the flexibility to avoid selling your investments at an inopportune time. You can’t always plan for a roof leak or other emergency, but you can make sure you have the cash needed for the expense and not have to rely on a volatile investment portfolio or creating debt to pay for it.
Tip 2: Don’t try and time the market.
Many investors tried to “get out” or sell their investments and go to cash while the stock market had already fallen significantly or tried to time when the right time was to get back into the market. This causes two dilemmas: 1) Locking in your losses and potentially missing out on the market rebound 2) Stress and anxiety about when to get back in. In a 2021 study done by Charles Schwab on market timing, it was found that an investor with perfect timing (investing at the lowest point) had incremental results over the investor who invested immediately.
Tip 3: Take advantage of the volatility.
If you’re adding money to your investment portfolio, you should welcome the volatility. You are buying stocks on sale! One of Warren Buffet’s most famous quotes reminds us of this: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
Tip 4: Reviewing your investments consistently.
Many soon to be retirees were caught off guard when they suffered severe losses to their investments during the Great Recession. It was likely because they had not reviewed their investment allocation to make sure they were aware of the amount of risk (stock exposure or high-risk investments) they had. When the stock market was doing well in the years preceding the Great Recession, many investor portfolios became unintentionally higher risk as the value of the stocks grew relative to the total size of the portfolio. It is important you review your investment allocation at least annually to rebalance your allocation to their intended targets or at least be aware of the amount of risk you are exposed to.
Tip 5: The value of working with a Financial Advisor.
I was able to provide so much comfort to my clients in either talking them through their concerns or reassuring them we’ve planned so well this momentary decline did not have an impact on their retirement. That relief is priceless! Having a Financial Advisor who can help you make decisions from a research and fact-based perspective can really prevent you from making emotional decisions that could have a long-term impact on your retirement. Many people are hesitant to hire a Financial Advisor because of the cost, but you don’t try and learn to do your plumbing or electrical on your own – why try to DIY your way through your retirement!
Important Disclosures
Sathya Chey is a registered representative with, and securities and advisory services are offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
Stock investing includes risks, including fluctuating prices and loss of principal.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
