The recent stock market crash is only making matters worse. Longer term, financial advisors say investing in stocks, especially through tax-efficient strategies like 401(k)s, is a smart move. But it’s hard to watch hard-earned investments shrink, even more so if they’re earmarked for a down payment on a house or a wedding.
And timing is everything: for those who put money in the S&P 500 Index at its pandemic depths in March 2020, they’ve made a total return on their investment of about 80%. But those who invested at the beginning of this year are facing a decline of nearly 20%.
It’s a similar story in the housing market. Those who owned homes before the pandemic have ridden a nationwide boom in house prices, building equity along the way. But that same trend has left homeownership out of reach for many younger people. In February, a gauge of home prices in the 20 largest US cities rose 20.2% from a year prior. At the same time, mortgage rates are now at the highest since 2009, pushing up monthly payments.
What can you do about it?
The main thing advisors stress: don’t panic. Although this year’s drop in stocks has been startling and rising prices are straining budgets across the country, the pain is likely temporary.
Historically at least, equities rise over time. That means it’s actually a good idea to invest in broad-based indices like the S&P 500 now, when stocks are cheaper, said Jonathan Huss, certified financial planner at Hussmen Financial. He also recommends re-examining your budget and cutting back on items like subscription services.
Another tactic is to embrace sharing, according to Eric Walters, founder of Summit Hill Wealth Management.
“It’s a good time to get a roommate and share the cost of a hotel room with friends for travel,” he said.
Finally, it can be helpful to know which items are most affected by inflation. For instance, prices for gas and airplane tickets are soaring, while the cost of admission to sports events and movie tickets aren’t.
“Make sure to budget your fun spending, and don't get caught spending too much for things that don't really bring you any joy and aren't necessities,” said Joseph Brady, founder of Rock Financial Planning.
This article was provided by Bloomberg News.