Rebuilding Your Wealth: The Overview

The nightmarish markets have taken their toll on consumers’ assets—and their confidence. But believe it or not, the crash has also created opportunities. Our guide to getting your financial house in order.

In the past year, the country has endured plummeting home prices and a brief but ugly encounter with $4-a-gallon gas. We’ve watched as the financial system entered the twilight zone, with banks failing, money-market funds breaking the buck and plunging markets erasing $14 trillion of investors’ wealth. But even as consumers wrestle with a host of new concerns, they’re finding new opportunities—and not under their mattresses.

Granted, the new economic climate has many people playing defense, adjusting retirement plans and tweaking their portfolios. But some are also seizing the moment—taking advantage of falling prices to invest for the long haul. You can see signs of life in some housing markets: In hard-hit California, prices still sit more than 40 percent below the heights they reached during the bubble, but home sales have risen five months in a row. And even though major indexes have fallen as much as 40 percent from their 2007 peaks, some discount brokerages say their account activity has surged since September as customers swoop in to buy amid the turmoil.

That’s not to say that most of us are going to have an easy time rebuilding our wealth. Even optimists are no longer betting big on a quick recovery for the stock market. Thanks to the sweeping federal bailout and the policy priorities of the incoming Obama administration, many Americans are likely to face a new tax burden. “This is going to test everyone’s resolve,” says Joseph Davis, economist at Vanguard. Still, financial planners say a little flexibility about your saving, spending and retirement plans will go a long way in this environment. So we’ve laid out some strategies for recovery in five key areas of your financial life: Retirement planning, investing, real estate, borrowing and spending.

In the end, facing the new economic realities head-on may have benefits you’ve never considered: For one, you’ll actually worry less. When people take even small measures to exercise control, they report less anxiety and less stress, says Patricia Frazier, a professor of psychology at University of Minnesota. It sounds obvious, but when the secretary of the Treasury floats the specter of another Great Depression, it’s important to preserve your optimism along with your portfolio.