We seem to be at a moment of maximum uncertainty. The COVID-19 pandemic has become the most momentous public health crisis since the flu pandemic of 1918. To fight the virus, medical experts have advised us to stop life as we know it. However, putting our society to sleep has wreaked havoc on an economy that was setting records merely weeks ago. To curb an economic collapse, the federal government has infused record-setting funds into the stock market. This is quite a profound series of events, but in my opinion, a temporary downturn.
My experience and studies have taught me that the authenticity of long-term, diversified, goal-focused, planning-driven investment policy helps us behave rationally in fearful, uncertain times. While there hasn’t been a medical event like this in 100 years to draw parallels from, there are many other recent, extreme, fear-inducing “Black Swan” occurrences that significantly impacted the markets. We had the global financial crisis from 2008-2009, a large-scale terrorist attack on American soil in 2001, and Black Monday in 1987. Each of these events brought us to a moment of maximum uncertainty, which was ultimately followed by tremendous economic expansions and the inevitable rising of equities and dividends. Since the bottom of the S&P 500’s 57% drop in March of 2009, it has compounded at more than 14% annually. Nobody knows which way the market will go next in the near term. However, for the long-term, diversified, goal-focused, plan-driven investor history is our best guide–and the rebound from historic lows has always been in our favor in the long run. I strongly encourage you to remember this in these uncertain times. Be of good cheer!
In the meantime, I am getting calls from clients about their friends and family losing jobs or facing extremely difficult financial situations. So, I wanted to give you a few of my crisis management tips.
Emergency fund
Hopefully, you have what I and most CFP® professionals preach: at least three to six months worth of expenses saved in an emergency bank account. If you didn’t have these funds in place, you must start conserving cash and income NOW for the most sacred of expenses: food, shelter, electricity, heat, and transportation. Everything else can pretty much wait. Credit card debt? I would pay the minimum if you are in this dire scenario. Not making credit card payments will hurt your credit score, but if you are in survival mode, then you can fix that later. Credit card companies and banks are being helpful during this crisis, so I would take advantage of that. Big car payments? Well, if you are a two-car family with little-to-no income right now, you might have to let go of one vehicle. Having a nice new car in the driveway feels good until you have no money to put food on the table. If you are in this quandary, remember this lesson for when this crisis is over. Make sure to allocate funds towards an emergency bank account.
This article is a good read for those of you in a cash crunch. They list ten sources to raise quick money, ranked from worst to best here: https://www.morningstar.com/articles/975122/10-sources-of-emergency-cash-ranked-from-best-to-worst
Expense slashing
If your income is going to cease or will soon stop, now is the time to go through your expenses and begin to cut all of the non-essentials. Use the expense sheet I’ve provided here as a starting point: https://falbowealth.com/wp-content/uploads/incomestatement.pdf
I would ask these questions about each of the costs you write down:
- Is this expense essential?
- Can it be eliminated?
- Can it be replaced?
- Can it, at least, be deferred or turned off for 90-120 days?
Now is the time you can call your utility and mortgage companies to see what kind of relief they are giving in this current climate. Just remember to get the details of their deferment plan. How and when do they expect you to pay them back? What are their requirements and stipulations?
You have options if you lose or have lost your job. The CARES Act recently passed by Congress will increase unemployment benefits substantially for the next three months. Moreover, businesses deemed “essential” are hiring at a feverish pace.
To pre-retirees that are saving and still adding to their retirement accounts: this is usually a significant opportunity for you. Keep those retirement 401k contributions going if you are employed. Add to your accounts when and where you can. Of course, have a plan in place with goals and start adding and diversifying.
To retirees that are currently drawing income from your portfolios: when retirees withdraw funds from their portfolios during down markets, it could be problematic if not properly planned beforehand.
At Falbo Wealth Management, we present our clients with “what if” scenarios in preparation for inevitable bear markets. It is so important to have a Plan B and possibly a Plan C in place. If you do not have a contingency, now is the time to speak with a professional about your circumstance.
I always make myself available to listen to your concerns and see if and how I can guide you in the right direction. Almost everyone is experiencing some level of uncertainty about the future right now. I am here to help provide you with guidance and reassurance by sharing my expertise during this crisis.
Would you like a second opinion on anything – the markets, your investments, your future, your options, etc. during these uncertain times? I’m also extending this offer to people you know. I would be glad to reach out to them to provide them with some peace of mind as well by providing a second opinion and answer any questions they have, so please feel free to send me their contact information or forward this article to them where they can schedule a complimentary 20-minute telephone call or virtual meeting . You can also share with them my email address: joseph.falbo@falbowealth.com.
If you want to read more about what a financial advisor’s role is in your portfolio management and simultaneously get excellent financial education, you can download my ebook here for free:
Stay positive
Try to avoid the news right now; the negativity is terrible for our minds, bodies, and souls. Enjoy this time with your family, and take up that hobby or project you’ve always wanted to do. Reach out to loved ones, and take care of the most vulnerable among us. Pick up a skill; maybe a new language! Read the book you always wanted to read. Do not squander this opportunity to take advantage of this time we are being given.
Remember, there is always, always something for which to be thankful.
Joseph F. Falbo, CFP®, AIF®, CRC® is an independent LPL financial advisor that helps grow and preserve clients’ wealth using cutting edge, customized, and comprehensive strategies. With over two decades of experience, Joe helps clients to pursue and retain the lifestyle they want in retirement. To discuss your retirement goals or any financial topic you want, schedule a 20-minute complimentary call. To learn more about Joe, please visit falbowealth.com.
CRC conferred by InFRE®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
No strategy ensures success or protects against loss. All performance referenced is historical and is no guarantee of future results. Past performance is no guarantee of future results. Indexes cannot be invested into directly.
Source: Standard and Poor’s