Fearful about your finances? Words of wisdom from our founder
To Our WISE members
Life has changed in ways we could never have imagined. We’ve added the new term “social distancing” to our vocabulary and are feeling the impact of lockdowns, school closures, job losses, lines at the grocery store and empty shelves.
It’s a frightening scenario and for those of us (like me) who have a pre-existing lung problem, it’s a true concern. While this is unlike anything I’ve seen in my 77 years, this is not forever.
I believe we have the resilience and stamina to make it through these challenging times. Let me tell you why:
The world is united behind one goal. China has shown how to contain the virus with authoritarian methods, total lockdown. South Korea, Singapore and Hong Kong are having success with less authoritarian approaches. Major European countries are taking drastic measures and the United States is finally doing the same.
Whether through herd immunity, containment, or invention of a vaccine, this, too, shall pass. Let’s hope that we learn from our mistakes and develop new best practices to fight the current challenge and future health crises.
This crisis hit during stronger economic and financial times. We all remember the impact of the 2008 financial collapse on the value of the housing markets and then the domino effect to other assets. That crisis was triggered by a systems failure in the financial markets. This crisis has hit us during a stronger economy - high employment, solid corporate earnings, markets at record highs and home equity significantly less leveraged than in the 2008 period. What we’re seeing today more closely parallels 9/11. It’s an event-driven crisis and that’s a big difference. If we can get COVID-19 under control or at least have some positive news on it, a quicker recovery from an “event driven” shock is possible.
The Fed’s massive stimulus plan should help. It’s reassuring to know that the Federal Reserve is addressing this crisis with all the tools it has available. By injecting massive liquidity, the Fed’s message to us is “there will be enough money in the bank for our needs and obligations until we get to the other side of this crisis.”
News of a breakthrough will boost the markets. Any positive news on controlling COVID-19, when it happens, will help rebuild confidence. The markets will have reason to “celebrate” and likely (with lots of volatility) move in a positive direction.
Now on a personal note:
Watching the financial markets decline and losses grow in our own portfolios has been very painful I’ll admit. But, the fact is – it’s already happened. Remember that even the most conscientious of investors could not have prevented the damage this decline has caused. As Michael Batnick, director of research at NYC Ritholtz Wealth Management notes: this is the fastest the US stock market has declined to a bear market (down 20% from the peak) going back to 1915. The average number of days from peak to a 20% decline is 255, the median is 156 and the 1929 market crash took 36 sessions. Our recent market selloff reached the bear market in just 17 trading days. If this feels overwhelming, you are right!
The fundamentals of America’s corporations and businesses did not change significantly in those 17 trading days. We will continue to provide the world with high quality products and services driven by our innovation, capitalism and old-fashioned hard work.
The bottom line … Focus only what you can control going forward:
Check the amount of cash you have readily available (or assets you can turn to cash immediately). If you have enough for 10- 12 months, you should be OK.
Review your current spending and look for ways to conserve your resources
Ensure your estate plans (including Advanced Directive) and insurance are up to date.
Make a contingency plan if you don’t have one already. Discuss all possible “what ifs” for you and your loved ones around COVID -19.
While timing the market to avoid wild swings is beyond your control, the amount you’ve allocated to stocks, bonds, cash, real estate is in your control. Review how closely your portfolio tracks your level of comfort with risk. If you are anxious, change your mix to be more conservative. If you are well diversified and have enough cash, you should be OK in the future.
If you must sell to raise cash, change your allocation or avoid a personal meltdown, consider dollar cost averaging.
If you are asking whether this is a buying opportunity, the answer is “Yes BUT”- Only if you are patient, won’t need the money for years and have enough in assets and cash that you can still tolerate losing significant amounts. For those of us in the “high risk” category by age, unless you have substantial assets and a strong stomach, I’d recommend against being tempted by the bargains out there until we have more clarity and confidence. Dollar cost average back into the market as well.
Eat healthy, exercise, enjoy family time, tackle projects you didn’t have time for, breathe deeply, meditate. Practice gratitude and random acts of kindness.
In Orange County we’re blessed in so many ways and we have a number of nonprofit organizations stepping up to help those with specific needs. Please call on these resources if you or your neighbor needs them.
We want to thank all the health care professionals who are working hard each day to keep us safe and healthy. We will get through this!
Victoria Collins, Ph.D.