Suze Orman says you can avoid 5 common mistakes people make in a stock market crisis

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Suze Orman says you can avoid 5 common mistakes people make in a stock market crisis

Alarm bells are ringing in the stock market, and personal finance expert Suze Orman has heard them and offered advice as you watch cautiously as your investments lose value.

That women & money The podcast host fears that in a shaky market with predictions of a recession, people will make grave mistakes out of panic.

“I know that here and now you tend to sell everything,” Orman says on a recent podcast. “I’m just not invested in the stock market anymore. You managed. You can’t take it anymore and you’re out.”

It is understandable that people are afraid. Some economists and market analysts say we’re headed for a recession and question the ability of the federal monetary authorities to raise interest rates just enough to cool inflation without crashing the economy. In fact, Deutsche Bank recently announced that it believes a mild recession could soon materialize thanks to rising interest rates.

Instead of panicking, Orman says it’s time to take these steps to prepare and avoid hasty mistakes.

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1. “You need to start stocking up now.”

The first mistake people make during a recession is to continue spending as usual, Orman says. Additionally, the pandemic has created a situation where Americans want to step out and spend at ease with restrictions.

Cutting spending now is Orman’s top tip if you’re worried about a recession, she said in an interview with People magazine last month. Buy only the necessary items and put the rest aside to save.

“Think of it as an economic pandemic where you don’t spend and you don’t go out unless you have the money to do it,” she said.

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2. “You need an emergency savings fund.”

Once you’ve cut spending, another common misstep is not putting money into an emergency fund. We learned again during the pandemic why emergency funds are needed when many people have lost their income or jobs.

A recession could increase job insecurity, and having an emergency fund to cover costs if you’re laid off or reduced hours is crucial to your financial survival. Orman says you should save eight months on living expenses, but if you can’t make it, that’s fine. Any amount is better than nothing, she says.

“Recessions are proof A, B, and C of why you need an emergency savings fund,” Orman wrote on her blog when a recession loomed in 2019. “Everyone is vulnerable. Anyone!”

3. “Pay off your credit card debt…no excuses.”

Credit card debt is probably your largest debt in terms of interest rates. And when a recession hits, credit card debt should be the first to go, or it could be the first to cause problems.

If you lose your job and your hours are slashed, credit card rates can be “a disaster,” Orman says in the blog post on preparing for recessions.

A good way to prepare is to look at other credit card companies that might make you an offer. If you transfer your balance to a new company, they may offer to not charge interest for at least a year. But those deals can disappear in a recession, Orman says, which is why you should take advantage now.

“Transfer your credit card balances to one of these businesses and then make it a priority to pay off any debt during the time you’re not being charged interest,” says Orman.

4. “We really don’t have to choose between selling all or none of a stock we own.”

Sometimes people are reluctant to pull some of their money out of stocks that are declining in value, possibly because they want to avoid capital gains taxes or are concerned about lost profits if the stock goes up, Orman says.

But she has a trick to deal with this situation. Without giving away all of their secrets, their basic tenet is that you don’t have to treat a decision to sell stock as an all-or-nothing decision. Consider selling piecemeal to keep more of your money safe and still earn a portion of the return if the stock takes off.

You can read her detailed advice in her guide to stocks. Deciding to hold or sell struggling stocks is certainly a balancing act.

Orman also advises in a recent podcast episode that if you like the mix of stocks and you have more than five years until you need the money, “You need to stay invested — right here and now is not the time to leave.” the markets if you haven’t already.”

5. “You can’t have money on the market that you’re going to need within five years.”

This idea highlights flaws that Orman sees in two groups of people. First, during a recession, you can’t cut corners and stop contributing to your 401(k) or retirement accounts, she tells People magazine. This can be especially true for younger people who are putting saving for retirement on hold. Instead, treat retirement savings like a bill payment and set aside the same amount every month, no matter what.

But even retirees need to be cautious during a market downturn as they may need that money in the next five years. If that’s the case, it’s important to have a three to five year “cash cushion” for retirement, Orman says.

“Every month that you put your money in your 401(k), just keep doing it,” says Orman.

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This article is informational only and should not be construed as advice. It is provided without any guarantee.

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