Emergency savings are needed to help a person in the event of a sudden financial setback, e.g. health complications, job loss, etc. It is generally recommended to have enough short-term savings to cover at least six months’ worth of potential expenses.
A recent study conducted by Bankrate, though, suggests that millions of Americans likely do not have any kind of buffer against an unexpected financial hardship. Specifically, 28 percent of surveyed U.S. adults said that they currently have no emergency savings whatsoever, and 34 percent reported that they do have a rainy day fund but that it would not be sufficient to cover at least half a year’s worth of typical outlays.
With such responses it should not be too surprising that 13 percent of surveyed Americans said that “not having enough emergency savings” is their biggest financial regret at the moment, surpassed only by “not saving for retirement early enough” (18 percent). For the latter, older individuals were much more likely to say that they wished they had started earlier when it came to setting money aside for retirement, which makes sense since younger respondents likely believe that they still have a lot of time left to get their old-age financial preparations on track.
Unfortunately, another new report from Bankrate suggests that even if Millennials are more timely with their retirement saving than older generations were, they still may not be maximizing the growth of the assets they set aside because they are slow to begin investing in the stock market. Indeed, more than half of all surveyed adults ages 36 and older said that they are currently invested in the stock market, while only one in three surveyed adults ages 18-35 reported the same.
Apart from a relative lack of disposable income and general investing knowledge, another reason for Millennials’ apparent reluctance to participate in the market could be that memories of the financial crisis and subsequent “Great Recession” are still fresh in their minds. Although a repeat occurrence is possible, younger individuals with many decades left before retirement may want to take into consideration the stock market’s history of long-term resiliency.
For example, the S&P 500 has experienced 20 corrections of at least 5 percent since the March 2009 low. During each occurrence it might have seemed like the end of the world to investors but the benchmark index eventually recovered from every one of those drawdowns, and earlier this week even climbed to a new all-time high. Similarly, if you invested in the S&P 500 at the start of each year and maintained a holding period of 15 years, then historically (going back to 1928) you would have had a 98.7 percent chance of a positive return. Performance was even better for investors who utilized dollar-cost averaging.
Sources: Bankrate, Pension Partners, Twitter, J.P. Morgan, Advisor Perspectives
Post author: Charles Couch