Tuesday, April 12, 2011

Surviving the Recession

Before getting married I had saved up a good amount of money outside of retirement that I ended up consolidating into one investment account. I kept almost all of my savings in the market as it is "flagged" for retirement and I was in for the long haul.

Then the recession hit - and at the bottom I had lost more than half of the money I had saved!! Those were some tough times - I thought I had been doing the right thing by saving as much as I could while I was single and then looking at my account and losing something around 66% of that money at one point! YIKES!

At least we didn't panic and knew we were in for the long haul and it just so happens I went to look at my account today and it is finally positive! So NET - we haven't "lost" any money any more - but we lost 5 years of investing time.

In a way I can't believe the market has come back so much. I hope it starts growing again as this has been a lost decade basically.

I learned a few things from this experience - I had previously owned some CDs and other such savings and thought if I didn't need that money than I should put it in the market - so everything was in the market! When our savings was down 66% if I had to take any money out for an emergency or to buy a car or go on vacation - it would basically have cost us 3x what it would have cost if we had more in "liquid" savings. So since the recession I have been building up savings outside of retirement which is NOT in the market. Suze Orman suggests having 8 months of expenses in liquid savings - while we are not there - we now have money we used to refinance and go on vacations with that we are building up in an online savings account. It used to get close to CD rates (I opened it at 5.05%) however now it gets less than 1% interest - but at least it is not in the market if we ever need it.

I think people always say things like this - but then when the market is returning 16% you hate leaving money in cash that you could be making a return on - though now I learned why - I'd say I learned it the "hard way" but we really survived the recession quite well. I only wish we could have save more over the past 2 years but that was not the case. At least my "life's savings" is whole again - now it's time to GROW!

1 comment:

Dale said...

I think you're right on about the savings account outside of retirement. Another strategy I've started doing is doing some macroscopic market timing. A lot of people saw the housing bubble coming. Better to get out 3,4, even 6 months early than 1 day too late. Another reason for savings outside of retirement accounts is so you can buy back in after the crash. Then it's no longer a lost decade (instead a 130% return :)).