Insights from 2020: What We Learned
Last year, most of us started with the same basic financial goals that are common in every new year: build an emergency fund, pay off debt, continue contributing to a retirement fund and maybe increase income. Nobody realized that 2020, for many of us, might be the “rainy day” for which we’d planned for so long.
The pandemic wiped out millions of jobs, threw the markets into a whirlwind and removed feelings of certainty about the future. But if 2020 taught us anything, it’s to take care of the things we can control and learn to live with the things we can’t.
While there are some financial circumstances that may be out of your control, there are areas that are within your power to change. It’s smart to think about what you can control—and do so strategically. Consider these three important financial topics and what you can do.
Market volatility
Although investors notoriously attempt to time the markets, the truth is none of us can predict its ups and downs.
You can’t control the market, but you can control your reaction to the volatility. It’s easy to get concerned and sell off equities to avoid further losses, but then you may miss out on market rebounds. Remember that investing in the market is a long-term strategy, and historically, despite bumps, the markets usually rebound and can increase over time.
Retirement account balances
If you have been contributing to your retirement account for years, it may be difficult to check the balance right now, especially if you invested in equities. However, due to market rebounds, you may have recouped some losses. You simply can’t control whether your 401(k), 403(b) or IRA balance has dipped due to a market downturn.
You can control whether you continue to contribute to your retirement account. If you do so, most likely the account balance will increase when the market increases steadily again. Even if there are dips, there are market recoveries. And even if you need to lower your contribution amounts, you’ll maintain the vital habit of regular contributions.
Housing market
Despite an economic recession, the U.S. housing market is booming, driven by extremely low interest rates. New home sales in October 2020 increased 41.5 percent over the same time one year earlier, according to figures from the U.S. Census Bureau. The housing market and its surprising resiliency are not within our control, but homeowners and potential homebuyers can make strategic financial decisions as a result of its enduring boom—and that’s something you can control.
In response, you may decide to capitalize on the housing market in a way that could put more money in your pocket or free up more money to invest. For instance, homeowners may choose to refinance their homes at a lower rate, resulting in a lower monthly payment and more money to apply to other needs.
If you’re interested in buying a new home or rental property, now may be the time to do so, locking in a low interest rate. Or if you’ve considered selling your home, this may be a good time to make a nice profit. Buyers can get historically low mortgage interest rates, so they may want to buy a higher-priced home.
Last year was full of unprecedented and unsettling scenarios— yet 2021 can be viewed with some optimism. Learn from 2020’s financial lessons: proactively continue to manage what you can.
Now may be a good time to contact a financial professional to help you kick off 2021 with confidence.