Suze Orman has been doling out financial advice since the 1980s. She’s weathered financial storms from the Great Recession and housing crash to today’s high inflation and recession fears.
So, if you’re worried about protecting your assets in the middle of a financial storm, Orman has some great money moves for you. Especially if you need advice on how (and how not) to invest.
Here are eight investing mistakes that Orman tells her listeners to avoid and advice on which investing steps to take instead.
Spending and investing as normal in a recession
We aren’t currently in a recession, and it’s still uncertain whether a recession is coming. Financial experts consider a shrinking job market to be a key recession indicator, and despite inflation, the 2022 job market is holding relatively strong.
But after months of rampant price increases, it’s more than understandable to worry about where the economy is heading.
If you’ve run through your savings faster than usual this year, that’s understandable too. With prices more than 8% higher than they were last year, it’s been harder than ever to save money.
That’s why one of Orman’s top pieces of advice for anyone who wants to protect their assets in a recession is to stop spending and investing as normal. Instead, it’s time to adopt a scarcity mentality and focus on only purchasing what you need, not on what you want.
The same goes for investing. If you were inclined to take risks with your money by investing in volatile assets like cryptocurrencies, put that on hold for now while you wait to see what the economy will do.
Investing while you have credit card debt
One of Orman’s top pieces of advice is to stay out of credit card debt. If you already have credit card debt, make finding ways to crush your debt a top financial priority. Don’t invest and don’t make major purchases until you stop spending money you don’t have.
Orman also pointed out that credit card debt has the potential to grow as people emerge from a pandemic mentality. But, she says, it’s important to rein in that impulse.
Even if you’re keeping up with your credit card payments now, you might not be able to if you lose your job. Once you fall behind on credit card debt, interest charges and late fees will put the goal of catching up further out of reach.
Taking an all-or-nothing approach to selling shares
When the stock market starts to trend down, investors are often caught in a tricky spot. Should they sell stock that’s losing value, or should they hang onto it in hopes that they’ll recoup their losses when the market evens out?
According to Orman, the idea that you should sell it all or sell nothing is a false dichotomy. If you’re worried about your stocks’ decreasing value, take the more measured approach of selling some shares, but not all. You can adjust in real-time as economic conditions change.
For instance, if your shares in one company continue to lose value, consider selling more. If they start to rebound (or stay neutral), hold onto what you have. But above everything else, get rid of that black-and-white stockholding mentality.
Stopping contributions to your 401(k)
During a period of high inflation, you might wonder if you should shrink your retirement account contributions (or even pull money out early) to have more ready cash on hand. But pausing contributions is one of the worst ways seniors are throwing away money.
It’s best to consistently deposit cash into your investment account, Orman says, regardless of market fluctuations, especially if you’re still decades away from retirement.
Interest builds over time, so those who start investing as soon as they enter the workforce will have vastly more savings decades later than those who start saving in their 30s or 40s.
Investing when you don’t have a cash reserve
It’s tempting to feel like you need to invest every single cent you have, especially when you’re getting closer to retirement and worry you won’t have the funds to leave your job comfortably.
However, having cash on hand — specifically, enough to keep you afloat for three to five years before you retire — is one of the wisest money moves you can make.
If all your cash is tied up in an investment, your only options for paying your daily expenses are to cash out certain stocks or to pile on credit card debt, which is the last thing you should do when nearing retirement.
Instead of cashing out stocks that could regain their value a few years down the line, you can live off your cash on hand while waiting for the market to recover.
Failing to save for an emergency fund
Emergency funds are different from long-term savings accounts. Instead of holding enough cash for you to live on for years, emergency funds have enough cash to reduce money stress for up to eight months if you suddenly lose your job.
If you don’t have an emergency fund, Orman says, you definitely shouldn’t be spending more than you save or investing everything instead of tucking cash away for a rainy day.
Start putting cash away now so you can live for up to eight months without an income based on your emergency fund alone.
Investing in only stocks or only bonds
Nothing makes it clearer than a recession that a diverse investment portfolio is the best investment portfolio. If you start losing money on shares in one sector of the economy, shares in other parts of the economy can carry you through.
The same is true of different types of investments. U.S. Treasury bonds are generally considered safe, stable investments that yield a return after a set number of years.
Stocks often (though not always) give you a better return than bonds during periods of high inflation. Some stocks pay dividends. Others don’t.
To make sure your investments outlast a recession, Orman recommends a healthy mix of types of stocks, not investing solely in stocks or solely in bonds.
Giving up on investing when the economy slumps
If you’ve heard the economy is bad and getting worse, you might be inclined to stop investing in the stock market altogether. Orman’s advice: Don’t.
No matter how long it takes, the market always rebounds, and inflation always levels out. If you cash out your shares now, you risk not having a foot in the door when stock values start trending up again.
While you don’t need to hold onto every share (remember, Orman believes in challenging a black-and-white mentality), try to stay calm, avoid panicking, and stay the course.
Suze Orman’s investing advice can put you ahead of the curve for whatever’s on the horizon — whether it’s another Great Recession or a slow but steady return to pre-COVID-19 norms.
Whatever the case, avoiding these mistakes can be a great way to boost your bank account and build a solid financial future that lasts you a lifetime.
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