Today, the Federal Reserve released its quarterly report on household wealth. According to MarketWatch, the report contained this information on net worth:
Household net worth fell at a 9.9% annual rate in the first three months of the year to $50.4 trillion, the lowest in more than four years. Net worth — assets minus liabilities — peaked at $64.4 trillion in the spring of 2007, the Fed said in its quarterly flow of funds report.
This is the 7th consecutive quarter that saw a decline in household wealth. While there are some bright spots in the report (more disposable income, lower credit card debt), the fact remains that many people are seeing their overall net worth decline. Home values are declining and investment portfolios are experiencing losses. Since many people have a great deal of their assets tied up in their homes, it is little surprise that the bursting of the real estate bubble has hit net worth. Additionally, with the losses to the stock market, the assets many had in their retirement accounts are dwindling. As I see it, there are two things you can do to reduce the psychological burdens that come with these losses:
- View your primary residence as a purchase: Instead of thinking of your home as an investment, think of it as a long-term purchase. Consider the intangibles that come with your home (a yard for your kids, your own space, etc.).
- Remember the long-term value of the stock market: Even though your retirement account may be suffering now, over time stocks gain overall. If you keep investing now, there is a good chance that in 10, 15, 0r 20 years, you will see significant gains.
This still doesn’t change the fact that your net worth may have fallen. However, if you stick with the sound personal finance fundamentals of reducing debt, building your savings, engaging in prudent investing and making your mortgage payments, your net worth will recover — and eventually thrive.
How has your net worth been affected by the recession?
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