A lot of has changed since the market collapsed in 2008, housing prices are starting to increase, car sales are starting to go up, and people are starting to feel more relaxed about their money. Fidelity Investments, Executive Vice President John Sweeney joined me recently to talk about the changes investors have experienced over the last five years, whether or not these changes are temporary or permanent, and the proper steps we can take to put our best financial foot forward.
Candace Rose: According to the Fidelity Study, there may have been a silver lining to the financial crisis. Over the past five years investors have moved from scared to prepared. Can you tell us what that means?
John Sweeney: “The good news coming out of the financial crisis is that we saw about 58% of the people said that they actually felt more confident now than they did before the financial crisis began. What we see is whether we’re unable to predict where the stock market is going to go or interest rates may be, there are two levers that are very important and we can control our own personal economy. We can control what we save and we can control what we spend. We saw investors make changes to those two behaviors.”
Candace Rose: How have investors changed our behavior over the past five years?
John Sweeney: “The good news is about 42% of the people actually reduced their household debt, so whether that’s paying down a mortgage, paying off high interest credit card debt or changing their car loan, that actually has been beneficial because you’re actually spending less throughout your household finances.
The converse to that is we see about half the people actually increase their savings rates. They recognize that they had to take control of their own retirement preparedness, and the best way to do that is to save more and make sure you’re contributing to a 401(k) and an IRA.”
Candace Rose: Do you think the changes are temporary or permanent?
John Sweeney: “We actually see when we see changes like this where people are changing contributions out of a paycheck into a retirement account, those changes tend to be very long lasting. If you pay yourself first, then you’ll learn to budget and live on what’s left. If you’re trying to take savings out of your spending account, then it’s very difficult to do that because you end up spending more than you had planned sometimes.”
Candace Rose: What are some of the steps we should be taking to put our best financial foot forward to the future?
John Sweeney: “Well, one way to make sure you preserve the amount that you want to save, is to create an emergency fund. What we saw is almost 17% of the people who we surveyed had some impact to their employment during the market downturn. So preparing for that, anticipating that some bump in the road will occur down the road is one important step that people can take today to prepare for the next market downturn.”
Candace Rose: Do you have any additional tips or information you’d like to share?
John Sweeney: “Well, the one thing we like to make sure that people do is to set up a plan and understand the role that different parts of their portfolio are going to play against those plans. Everybody wants to retire, some of us want to send our kids to college or buy a home, as we want to understand the role that each part of our portfolio plays within our own household economy. Those people who have a plan feel more confident and are much more able to withstand market downturns.”
Candace Rose: Where can we go for more information?
John Sweeney: “We have a viewpoints article on our website: Fidelity.com that give five key tips that investors can talk about immediately. There’s lots of information and tools that people can go online and explore how to save more, how to construct their portfolio and what steps they can take. If they need additional help, they can certainly call us and ask for help from a representative as well.”