2020 was a year of economic upheaval caused by a pandemic as well as a presidential election. What can we take away from such a chaotic year in terms of money management and other financial lessons?
Financial planners say these are the most important takeaways from this tumultuous year.
Have an Emergency Fund
One lesson all of us have learned in 2020 was the value of an emergency fund. Experts say you should have “emergency savings” to cover at least 3 to 6 months of unexpected job loss or income reduction. This was a hard lesson learned by millions of Americans. Many found themselves unemployed in one of the most dramatic unemployment spikes in the nation’s history.
Adjust Your Portfolio
Faced with sudden job loss, millions of Americans also had to turn towards their investments to stay afloat. An economic crisis like the one in 2020 has taught one of the most important financial lessons: having a diverse portfolio. The experts say that you need to have the right mix of stocks, bonds, and other assets in your portfolio. Having the right mix is important – and financial advisors suggest that the mix also needs to vary by age. If you are closer to retirement, you’ll want less in risky assets like stocks. You should have more in safer assets like bonds. If farther from retirement, you can handle short term swings more easily and can take the chance on some more high-risk assets.
When Investing, Keep Your Eye on the Long Term
As mentioned above, the experts say to build a powerful portfolio with the right mix of assets. They also say that once you do so, just “set it and forget it.” In other words, keep your eye on the long term, and do not make panic moves in a crisis like the pandemic. Stocks tumbled in the early days of the COVID-19 crisis, losing as much as a third or more of their value. But now, as the year draws to a close, with a new incoming President, and a vaccine already released, the stock market has bounced back, reaching a record high. Those who panicked and took money out of the stock market lost out on significant value.
What has the economic crisis of 2020 taught you about managing personal finances? Please reply using the comments below.