Last Updated on April 5, 2020 by Mark P.
Now is the time to either freak out or take a sigh of relief when looking at your emergency savings. Reports from over the last couple of years have shown that 2 out of 3 Americans don’t have at least $1,000 dollars in savings. Now those who did not prepare are feeling the pain as we end the eleven-year bull market and face a very unpredictable recession.
So for those who do have emergency cash and are wondering what to do, that could be the question that begins to paralyze people. Luckily, Laurie Konish at CNBC Money has put in the work so you can think less, act more.
First, Konish points out the power of online savings accounts; in providing a statement by Greg McBride, the chief financial analyst at Bankrate, “Online savings accounts have the best returns, so you can preserve the buying power of that money.” Online-only banks also offer higher interest rates on savings accounts compared to normal brick-and-mortar banks. Even if interest rates fall, most online savings accounts still offer an interest rate of 1.5%.
But what about stocks? Anyone who has watched the news in recent days knows that we have essentially stepped back four years worth of financial progress according to the stock market, causing many individuals to panic sell causing the stock market to crash as a result of this massive selloff of single stocks. Konish spoke to Douglas Boneparth, the president of Bone Fide Wealth in New York, in order to find a simple answer to this.
“You’re weighing a short-term need for an emergency against long-term growth,” Boneparth stated. “You want to be careful, especially when it comes to long-term money and retirement assets.” Essentially, you’re borrowing against your financial future tomorrow in order to pay yourself today, thus losing out twice by selling your stock at a dip and losing out on potential dividends.
So what does all of this mean? If you have a fully-funded emergency fund (3-6 months worth of earned income) or at minimum a $1,000, use those funds only for emergency circumstances, and consider parking your emergency cash in a high-interest online savings account at a federally insured bank. As for those stocks, ride it out, the stock market is a wild and unpredictable beast but if time after time of disasters has shown anything, Wall Street never dies and the market always rebounds stronger in the long run.