Latest news with #AltruistWealthManagement
Yahoo
15-05-2025
- Business
- Yahoo
Waiting To Invest Until the Market Feels Safe? That's Just Fear Talking
When the stock market makes big moves, particularly down, it's easy to get spooked. New and less experienced investors are more likely to react to these moves by waiting or pulling out of the market. Find Out: Read Next: If recent stock market volatility has you scared and you think you'll hold off on investing any further until the market feels 'safe,' you are likely going to miss out on corrections and future gains. Finance experts explained why waiting for a 'safe time' is just fear talking, and what to do instead. Humans are hard wired to avoid danger, so it's understandable that your reaction to people crying over portfolio losses is to halt your investing, according to Carson McLean, a CFP and founder of Altruist Wealth Management. 'Our brains crave certainty, and investing rarely offers it,' he said. The problem is that most newer investors don't realize that 'the cost of waiting often isn't obvious in the moment,' McLean said, 'it shows up in lost opportunities and the erosion of purchasing power from inflation.' Playing it safe is a move he called 'quietly expensive.' Learn More: If you're following the reactive behaviors of others whom you know who are also panicking about a change in the market, you're probably engaging in 'herd behavior,' which Robert R. Johnson, PhD, a certified financial analyst and professor of finance in the Heider College of Business at Creighton University calls 'a wealth-destroying activity.' Following the herd leads to mistakes in both bull markets (markets up) and bear markets (markets down), he said. On the other hand, some people may think they have an edge and can read 'when to get in or out before everyone else,' McLean said. But to successfully time the market, you have to be right twice, getting out and getting back in, and be faster than everyone else trying to do the same thing. In other words, highly unlikely. Johnson paraphrased Vanguard founder Jack Bogle who said, 'After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know of anybody who knows anybody who has done it successfully and consistently.' Fear-based investing is emotional and reactive. In most cases, people aren't being tactical, they're reacting to headlines, McLean warned. 'By the time it feels safe, markets have usually moved on,' he said. Instead, he urged 'strategic investing,' where you follow a process, not a feeling. A strong investment philosophy is designed to work 'even when you're uncomfortable,' he said. Waiting for the sign that things are all clear usually means the market has already rebounded, McLean said. This happened to people in the 2008 crash, in 2011-12 when the markets wobbled, and in 2020, after the markets reacted to the COVID-19 pandemic. For a sobering look at just how much you could miss out on by pulling your money out when the market is low or not investing, Johnson shared data from JP Morgan Asset Management's 2025 Retirement Guide. If you look back at the 20-year period from Jan. 3, 2005, to Dec. 31, 2024, those who missed the top 10 best days in the stock market saw their return cut by over 40%, he explained. 'Many people have been preparing for a recession for years and have exited the stock market. The opportunity cost of such a strategy can be quite high.' Instead of reacting to every change in the market or economy, automate your contributions and take emotions out of the process, McLean urged. 'Have a written plan. You don't need to predict anything. You just need to keep showing up, especially when it feels uncomfortable.' Johnson suggested that the most effective way to avoid herd behavior investing is to establish an 'investment policy statement (IPS) and follow it.' This is best done with the help of a credentialed financial advisor who operates as a fiduciary. Investing without a plan is like driving without a roadmap or GPS, Johnson warned. 'An IPS is a written document that clearly sets out a client's return objectives and risk tolerance over that client's relevant time horizon, along with applicable constraints such as liquidity needs and tax circumstances,' he explained. For the vast majority of people, the best investment strategy is a KISS strategy (keep it simple, stupid), Johnson said. 'People should invest in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down or sideways.' This is also known as 'dollar-cost averaging,' a simple technique that entails investing a fixed amount of money in the same fund or stock at regular intervals over a long period of time. At the end of the day remember that 'cash doesn't earn much, and, on average, the stock market goes up,' Johnson said. 'Time is the key to successfully building wealth because of the effect of compound interest.' More From GOBankingRates Here's How Much Cars Made in the US Cost Compared to Mexico, Canada and China Are You Rich or Middle Class? 8 Ways To Tell That Go Beyond Your Paycheck 4 Grocery Items To Buy Now Before Tariffs Raise Prices This Summer 7 Luxury SUVs That Will Become Affordable in 2025 Sources Carson McLean, Altruist Wealth Management Robert R. Johnson, Heider College of Business at Creighton University This article originally appeared on Waiting To Invest Until the Market Feels Safe? That's Just Fear Talking
Yahoo
31-03-2025
- Business
- Yahoo
How Much Should You Add to Your Emergency Savings To Keep Up With Inflation?
Saving three to six months of emergency savings is a must, especially during times of economic uncertainty. However, rising inflation means that a $10,000 safety net might not be able to buy as much tomorrow as it does today. Learn More: Try This: GOBankingRates talked to financial experts to find out how much you should add to your emergency savings to keep up with inflation. Carson McLean, founder of Altruist Wealth Management, said individuals should aim to increase their emergency fund by 3% to 4% annually, assuming average inflation. 'For example, if your emergency fund is $30,000, aim to add an extra $900 to $1,200 each year, just to maintain its purchasing power,' McLean said. Individuals can find the inflation rate by using the annual Consumer Price Index for All Urban Consumers published by the U.S. Bureau of Labor Statistics. 'Set an annual recurring calendar reminder to review the prior year's inflation data and top up your fund,' McLean said. 'Alternatively, set up an automatic savings transfer. For example, add $100 per month to your emergency account, which covers most inflation adjustments without much thought.' Consider This: William Bergmark, a personal finance expert at Credwise, recommended that individuals use the annual inflation rate to calculate how much they should add to their emergency savings. 'For example, if you've saved $20,000 and inflation is 5%, you'll have to put in at least $1,000 that year,' Bergmark said. 'Inflation gradually erodes the purchasing power of your money — just letting it sit in the bank. So, it is a must to continuously build your emergency fund.' One easy formula to calculate how much should be added each year to offset inflation is: Emergency Fund Balance x Annual Inflation Rate = Adjustment Amount Therefore, if an individual saved $15,000 in their emergency fund and the annual inflation rate is 2.9%, they should aim to save $435 ($15,000 x 0.029). 'Over the years, rising prices — especially on essentials like rent, groceries, gas and healthcare — can quietly outpace your savings,' Bergmark said. 'Even if your fund was sufficient a few years ago, it might fall short today. It's a hidden risk that many people don't think about until it's too late.' To maintain an emergency fund, Jay Zigmont, founder and CEO of Childfree Wealth, recommended keeping the cash in a high-yield savings account and monitoring it every six months to ensure that one's savings are keeping up with inflation. 'If your life and job are more stable, you can lean towards three months, if not go to six months,' Zigmont said. 'Since it is based on your expenses, the amount needed will shift based on inflation and changes in your life.' He suggested a 'health check' on all your finances every six months. 'Some people like using the first of the year and mid-year — July 1. Others check their finances twice a year when they change clocks. The key is to set a reminder on your phone and make it a habit.' Christine Lam, an investment advisor representative at the Financial Investment Team, said individuals should offset inflation by ensuring their emergency fund grows at a rate that matches inflation. 'This can be accomplished by utilizing vehicles such as high-yield savings accounts, certificates of deposit (CDs) or money market accounts,' Lam said. 'To determine how much to save, review your monthly expenses and ensure that your emergency fund holds enough to cover three to six months' worth of living costs.' A simple way to keep track of savings goals is to earmark a percentage of one's paycheck to go directly into an emergency fund account. 'This ensures consistent growth, and as your income increases, your savings will automatically grow proportionately,' Lam said. 'At the end of each year, reassess your emergency fund, evaluate any changes in your financial situation and inflation rate, and adjust your savings goals if necessary.' More From GOBankingRates 4 Things To Watch for as Elon Musk Takes on Social Security These 10 Used Cars Will Last Longer Than an Average New Vehicle Warren Buffett: 10 Things Poor People Waste Money On 5 Cities You Need To Consider If You're Retiring in 2025 This article originally appeared on How Much Should You Add to Your Emergency Savings To Keep Up With Inflation?
