We were vacationing last month in Scotland. At a small country hotel—on a misty Western isle—I mentioned to a group of guests that I conduct research at Vanguard on retirement issues. You guessed it: Suddenly the conversation shifted from the weather (ever-changing in Scotland) to worries about finances and retirement security.
Given the recent market crisis, we’ve heard a lot about how the “only safe place” to invest your money is your mattress.
One of my colleagues forwarded me this story from CNN. It’s about an older woman who had stuffed her $1 million life savings into her mattress—only to be horrified when she learned that her daughter had gotten her a new bed as a gift … and thrown out the mattress with the money in it.
Federal Reserve data indicate that between January and early May, bank savings deposits rose by almost $170 billion. At the current rate, new deposits for 2009 will exceed those in 2008, which totaled almost $330 billion.
Clearly, you’re voting with your money. While many of you have stayed invested, others have either withdrawn from the market or stopped committing new investment to the market—and, in some circumstances, both.
The idea that you should have a cash reserve equal to three to six months of your living expenses would almost certainly make any “Ten Commandments” list for personal finance.
It might also be one of the least obeyed commandments, as suggested in a recent post by my colleague Ellen Rinaldi. I wholeheartedly agree with Ellen’s emphasis on having a cash reserve—savings stashed in a bank account or money market fund—before getting too focused on investing.
Graduation season is upon us. Many of us have children, grandchildren, or acquaintances sailing out of school … and hitting pretty rough seas in the job market.
I had planned to speak to my sons about investing once they graduate. But while investing is undeniably important, I think a better discussion would be around debt management.
