Currently many of you may be feeling the slam by the market.  You may have lost money in your 401k’s, retirement accounts, and college savings plans.  In this post my goal is not instill fear to you or give you reasons to stay out of the market.

My outcome today is to show you a few ways your savings could be effected in a turbulent market and what you can do to fix it. 

With the current amount of fear out there between banks and consumers the movement of money has come to a grinding halt.  Everyone is worried about there money and looking to ways they can keep it safe.

2 ways your savings could be effected.

• Losing money in the market.  This is the most obvious.   In turbulent times when markets are down people will fear the market and tend lose money in the market.  If you have money in the market you know how this feels when you open up you statement from your 401k and realize you’ve lost a few hundred dollars or more.  Now one wants this to happen to them but it does.
• Losing money do to inflation.  This is what I would call the silent killer.  Inflation is the rising cost of goods and services.  For example, the price of gas hitting $4 plus for a gallon fuel.  This creates a chain reaction which sent almost all other goods and services  skyrocketing. 

Which way will hurt you the most?

Out of both ways your savings could be effected by this, which one will do the most damage?  This is where I wish I could give you a straight answer but not everyone’s situation is the same.  Which do you believe effect you more?  Let me know in the comments.

Let me give you an example.  Lets say you were losing money in your mutual fund and decided to pull your money out and put it into a high yield saving account at say a modest 3.50%.  Not a bad savings rate.  You put all of your money in that account because you believe 2 things.

1. Your money is safe and can’t be lost.
2. You have a guaranteed interest rate of 3.50%

Everything sounds great now, right?

Let’s take a deeper look now.  Let’s say there is also an inflation rate of 6%. ( inflation varies but this an example)  Well if inflation, the cost of goods and services, is going up by 6% and you are saving your money a 3.50% there might be an issue.  You need to earn another 2.50% on your interest just to stay up with inflation.

Even though there is no money leaving your account physically it will eventually catch up to you when you have to fork out more money for your gas, food, and other goods and services you may buy.

That’s why I call inflation the silent killer. 

The interest you receive on your account has a lot to do with it.  Here a great article that will explain how this works.

So what do you do?

1. Keep investing.  By continually investing money each and every month you will buy more shares at lower prices versus when markets are buying less shares at higher prices.  This is called dollar cost averaging.  Eventually the market could go back up and with more shares combined with the lower prices you bought them at could give you a higher return on your money.
2. Don’t put all of your money in savings accounts.  If you do this you could end up in the situation I just talked about. 
3. Keep an emergency fund.  Your emergency fund is your insurance policy against any personal financial issues you may end up in.  Keep a balance approach when it comes to your emergency fund on and what you have invested and have at least 3 to 6 months worth of cash saved up to pay bills and other emergency payments.

Finally, are you worried about your investments?  Let me know how you would handle the situation.