Investment Losses Lead Drop in Household Wealth
The Federal Reserve just released a report outlining the state of household wealth in the U.S. The report looks at the changes in net worth of American households in the first quarter of 2009. The Fed releases these reports quarterly. Not surprisingly, a drop has been seen in household wealth for Quarter 1. This represents the 7th straight quarter that a drop in household wealth has been seen. Leading the drop in household net worth are investments, reports MarketWatch:
Households saw their assets drop by $1.4 trillion in the first quarter, including a loss of $448 billion on their real estate and $1 trillion on their holdings of corporate equities, mutual funds and pension reserves.
With real estate values falling, it is no surprise that this represents a hit to net worth; most Americans have a great deal of their net worth tied up in their homes. Additionally, the loss of $1 trillion in other investments is telling. Pensions and retirement accounts probably account for a large percentage of these investment portfolio losses.
Even though it might be tempting to pull out of your retirement accounts in light of these losses, that would be unwise. Over time, the stock market trends higher. Even though it is struggling right now, you are likely to see gains over a 20 year period. A long time frame should be considered. Now could be a good time to buy, since stocks are on sale, and you can get more for your money. When the market recovers, chance are that you will be in good shape.
This should also be a reminder that real estate can lose value as well as other investments. Additionally, it will recover at a slower pace and its annual returns are likely to be lower than those of stocks. This offers a reminder that diversity is needed in your investments.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
June 11th, 2009 at 12:17 pm
[…] issued its quarterly report on household wealth in the U.S. While there has been a rather dramatic drop in the net worth of American households, there were some interesting silver linings in the report. The most encouraging was a look at the […]