JD over at Get Rich Slowly points to a great resource over at Dave Ramsey’s website. It’s a short PDF file that reinforces that the best course of action during economic certainty is to NOT PANIC and manage your emotions. I’ve always enjoyed Warren Buffet’s phrase, “Be fearful when others are greedy and be greedy when others are fearfulâ€. I think it’s a great phrase for our current situation. There are other great quotes in the PDF file and some very good lessons from history. I’d highly recommend reading this.
I’ve been trying very hard to manage the fear I have in the economy. While I’ve been a bit of a doomsayer during the last 9 months or so, I’m trying very hard, at a personal level, not to let the fear drive irrational financial decisions. What do I mean?
As people have started to lose their jobs across wide sectors of the economy and I’ve personally been witnessing many acquaintances lose their jobs my first reaction has been to shut down spending and just put money away as fast as I can. While I believe that saving is always a good thing, I need to be targeted at how I save. Just shoving a bunch of money in a savings account isn’t going to help me prosper from the current economic crisis. It may help me feel more secure right now but the long term benefit will be minimized. It’s been very valuable for me to sit down and really think about my plan.
Here’s what I’m doing:
- Increasing my 401k contributions as much as possible
- Maxing out my ROTH IRA
- Continuing to save in my daughter’s 529 plan
- Starting to slowly move cash that’s in my 401k back in to the market
- Increasing our savings account balance just in case we do get hit with a job loss
While it hasn’t felt comfortable to make these decisions, I think they are the right decisions to make during the downturn. If I sit on the sidelines through the entire downturn and just hoard money, what’s my upside? Sure, I’ll have a decent cash position at the end of it but I will have made very little return on that cash. Based on historical data, it seems that the wisest investors have fought back their fear and pushed on. Hopefully that approach will yield me a great return over the long term. As I’ve mentioned in previous posts, while I’m scared, I’m also excited that this downturn happened now, during my 30’s instead of happening later in my investing career.