Let’s face it. Most people don’t have access to a financial advisor. And if they do, those financial advisors may not consider the human side of managing money – like how spending, saving, and stressing about it actually makes us feel.
Cue the Nav.it money coaches.* We’ve long been helping users in the app, but now you can write into our money coaches.
Nav.it money coaches* answer questions like how to cope with market crashes and what to do next if you’ve lost a lot of money.
Dear Money Coach,
A couple of years ago, I became obsessed with F.I.R.E. (Financially Independent, Retire Early). The idea of never working again just sounded amazing, so I’ve been taking steps to retire early. I’ve been house hacking for years, renting a spare room out of my house. I’ve job-hopped to increase my salary and seriously sacrificed to get to where I am, skipping trips and living minimally.
Over the last two years, I’ve thrown more than 50% of my income into investments, including BTC (Bitcoin) and altcoins. It feels like it was all for nothing. I was on track to F.I.R.E. in 10 years until the crypto crash. All of my progress was gone in the blink of an eye.
I am seriously anxious and stressed about recovering financially from all the losses. Please help me feel better about my money situation!
-From F.I.RE. to Forlorn
Dear From F.I.RE. to Forlorn,
So you’re not F.I.R.E. yet. The good news is that you are F.R.E.E., or what we like to call “Financially Resilient and Empowered Early.” I know, another acronym to add to the alphabet soup of personal finance. But stick with me.
Despite recent losses, you have positioned yourself to be resilient during these challenging times. This isn’t just a matter of fortune. You have worked hard, and it’s paid off!
So, how do you move forward after losing a lot of money in the market?
My aunt always used to tell me, “You can’t control the cards you’re dealt. You can only control the way you play the game.” The same is true when it comes to investing. You can’t change what the stock or crypto market is doing. You can only control the way you manage your cards, or in this case, money and investments. The problem is that sometimes our need to do something could cost us.
It’s natural to feel an immediate sense of panic when markets dive. We see our portfolios dropping and our hard-earned savings seemingly evaporating before our eyes, and we can’t help but feel overwhelmed and scared.
Tackling money habits
Take a deep breath. The money habits that led you to build wealth (spending less than you earn, avoiding lifestyle inflation, and maintaining low living expenses while making career moves to increase your salary) didn’t disappear with your investment profits. You can continue to build your wealth, though it may look a little different with the market outlook. But instead of focusing on the losses, strategize how you can move forward.
Let’s dive into market fluctuations
In the short term, markets can move suddenly in either direction. Recessions and bear markets are a natural part of lifecycles, and the long view of the market tells a different story than short-term losses. Investing consistently and regularly across various asset classes can help you recover losses as downturns end. Some investors describe downturns as “sales” and cheer “buying the dip.”
Just remember, you want to diversify your investments to limit risk in case of further dips. According to the pros, you should limit investments like crypto, startups, and NFTs to around 3-5% of your portfolio.
We sometimes feel better when we have more information. So let’s talk a little bit more about crypto markets. Why is crypto considered risky when so many people are making money and flaunting their gains with degen?
Crypto has always been considered a high-risk investment for four reasons:
- Cryptocurrencies are vulnerable to cyber-attacks.
- With so many blockchain projects, competition amongst cryptocurrencies is fierce.
- Government regulations, such as what occurred in China, could result in industry changes.
- Cutting-edge technologies like blockchain, such as space exploration, self-driving cars, or wearable technology, are innately volatile initially.
Admittedly, this knowledge doesn’t make losses feel any better, but it can help you move forward with investing. Let’s take a peek at the bright side.
Crypto losses, like stock losses, can actually be a tax benefit.
Remember, the IRS allows investors to take deductions on crypto losses. You can lower your tax liability which could lead to a tax refund. Consider that the taxes you pay on capital gains depend on how long you’ve held on to your crypto. Those held for one year or less only offset short-term capital gains, while you can use those held for one year or more to offset long-term capital gains. Worst case scenario, and you have no gains? You can deduct up to $3,000 in capital losses per year from your ordinary income according to 26 U.S. Code § 1211 of the I.R.S. code.
Reassess your investing goals
If you’re feeling nervous about the current market conditions, take some time to reassess your investing goals and strategies.
- Are you investing for the short term or the long term?
- What’s your risk tolerance?
- And most importantly, are you confident in your investment plan?
It’s okay if you’re not sure. Remember, the goal isn’t to take immediate action or corrective measures. Instead, it’s to create a plan moving forward so you can continue progressing toward your financial goals and feel less stressed. This could mean setting up a session with a money coach to look at how your milestones and plans may have changed. Or you can dive into asset management with a financial advisor like Jen of Utor Wealth.
You’ve got this, navigator. It’s a bump in the road, but it doesn’t have to derail your long-term plans completely.
Related Reads:
Why We Freak Out with Market Fluctuations
How Not to Get Scammed with NFTs
Top Finfluencers to Follow in 2022
How Stress Impacts Spending, Saving, and Investing
*Just remember, we are NOT your financial advisors, tax advisors, or legal advisors by simply accessing this site. Everything that you read or interact with on the site is for informational purposes only. You should contact a professional before taking action.
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