You aren’t the heiress to the Oh Henry candy bar fortune. Nor have you recently cultivated a crop of money trees. Your lottery numbers have never paid off, you’ve never hit lucky in Vegas, and you have yet to be discovered by a Hollywood filmmaker.
Every cent that you’ve accumulated has come from years of hard work and sacrifice. And you need to protect it.
Thankfully, you can take steps to ensure that your money remains safe and sound no matter what’s going on in the financial realm. That’s right. According to the experts, you can protect the fruits of your labor by following their sage advice.
1. Don’t Gamble With Food Money
An important rule to adhere to when investing is never invest money that you cannot afford to lose. In fact, Investopedia recommends that investors not get involved in equities unless they have an investment horizon of at least five years, but preferably more.
Never invest the funds you need to put food on the table and a roof over your head. And, if you are relying on that money for retirement, make sure you choose investment instruments that focus on protecting your principle over yielding high returns.
2. Don’t Freak Out
When a financial crisis hits and your stocks take a rapid nosedive, it is important to remain calm. As “7 Tips for Protecting Your Retirement Savings from Stock Market Turmoil” points out, watching the stock market close nearly 600 points down on August 24, 2015 was not fun, but those who remained calm and stayed the course were rewarded with a big bounce days later.
If you’ve given yourself the recommended five-year investment horizon, you will be able to ride out these market meltdowns–recovering your initial investment and walking away with a tidy profit.
3. Don’t Scoff at the Savings Account
While they may seem old school and not nearly as “fun” as watching the Dow, there is much to be said for keeping your nest egg safe in a savings account. Plus, as US News & World Report adds, many are insured by the FDIC for up to $250,000. And, to add to their appeal, many financial institutions also offer high-yield savings accounts that provide both the peace of mind of a bank account and a better-than-average return.
4. Don’t Forget to Diversify
The experts agree–a sure-fire way to weather a financial downturn is to diversify your financial investments. As Fidelity Investments advises, you should look for assets whose returns haven’t historically moved in the same direction, so that if a portion of your portfolio is declining, the rest is, hopefully, growing.
And, remember to adjust the way your portfolio is divided as you draw nearer to retirement by opting for safer investment tools.
5. Don’t Forget an Emergency Fund
With all this talk of investing and “growing your money,” it may be easy to overlook another important financial goal–creating a financial cushion. In fact, MarketWatch recommends that retirees have at least two years of their cost of living in cash. That extra money will serve as an insurance policy against a financial meltdown, enabling them to live off cash reserves while waiting for their investments to recover.
A financial meltdown does not have to amount to a personal catastrophe. By taking measures to protect your money, you can sail through an economic downturn with your savings intact and your future secure.
What strategy can you recommend for weathering a financial crisis?