It’s human nature—we’re drawn into the sensationalist headlines and, just like driving by a car wreck on the freeway, we can’t look away. But when the markets give you whiplash and just checking the daily updates strikes fear into your heart, it’s time to take a step back from what you can’t control and focus on what you can. Think that’s easier said than done? Here are 6 actions you can take during these turbulent times.
We live in an instant gratification culture, where we choose the shortest line in the checkout and change lanes at a red light to be behind the fewest amount of cars. But when it comes to your investing, the whole point is to reach a goal many years down the road. You aren’t going to see instant success or reach your goals next week, even when the markets are up.
Unfortunately, our short-term perspectives often lead us to make unwise choices, like selling when the markets are low and diving back in when they recover. Put that together, and you not only lose money but also lose out on potential growth and compound interest from the time you were out of the market. Investors who alter their strategy in response to the headlines get stuck in an endless loop of reacting to the markets, resulting in returns that may suffer from their emotional and impatient actions.
Remember that you’re investing for the future and stay committed to your investment strategies rather than give in to panic.
On that note, just because you should avoid checking your portfolio balance every day doesn’t mean it’s not worth it to check in with your financial advisor to ensure your assets are allocated according to your risk preference and time horizon. It’s easy to think you can handle plenty of risk when the markets are booming, but when the downward spiral starts, many people realize they aren’t comfortable with the level of investment risk they’ve taken. You would be surprised by how much volatility can lower just by swapping one security for another. Market volatility is going to continue while we’re in this bear market, so it’s not too late to change the allocation of your portfolio.
Now is the time to ensure that you have enough money set aside in your emergency fund to cover 3-6 months of necessary living expenses. Mandatory living expenses include mortgage or rent, utilities, groceries, insurance premiums, loan payments, transportation costs, etc.
A common question is: “How much of an emergency fund should I maintain?” If you’re single, your spouse doesn’t work, your spouse is self-employed, or you think layoffs are possible, a 6-month emergency fund is ideal. These savings should be easily accessible, but you also want that money to be working for you. Research different savings vehicles that will keep your money liquid but also pay a competitive interest rate.
If you are still working and following the social distancing guidelines, you may notice you have some excess cash flow. Instead of eating out, paying for gas, and shopping, you can use that saved money to build up your emergency fund or set funds aside to make other smart money moves.
Good-quality stocks are significantly down from their highs, meaning you have the opportunity to snap up some bargains when the recovery takes place. Start doing your research now so that you have a list of securities to buy in your self-managed accounts. Focus on securities that have held up well during this downturn, since those will be the leaders during the recovery.
And no matter how dire things look, continue to make your retirement plan contributions. You might find that you have more cash on hand than you need in your emergency fund or that you aren’t spending as much money right now. If your emergency fund is where it should be, funnel this extra money into your retirement or other self-managed accounts. I’ve never heard anyone say, “I wish I had invested less during the financial crisis.” The only regret I hear is that they wish they had invested more to take advantage of lower prices.
One way the government helps stimulate the economy is by lowering interest rates, which the Federal Reserve just did recently. Mortgage rates are incredibly low right now, making this a great time to determine whether you would benefit from refinancing your mortgage. Be sure to speak to your financial advisor and your mortgage lender before jumping in, as there may be closing costs or other financial implications to consider.
As Fred Rogers’ mother famously said, “Look for the helpers” in scary times. At Point Wealth Management, we want to fill that role of helper for you. We are living in unique and unprecedented circumstances, and it’s understandable to be worried about your money on top of everything else. The truth is, we don’t know how long shelter-in-place orders will last, how low the markets will drop, or when they will start recovering. But these times of hardship present opportunities to make positive changes. The coronavirus outbreak is making us all reflect on our mortality and our daily lives. Social distancing is giving us the opportunity to see what we miss, what we’re glad we’re not doing, and think about what we would like to change about our lives once things go back to normal.
We want to help you make decisions that will enhance your finances and your life so that when we go back to our regular routines, we do so with more clarity and confidence. While you have some extra time on your hands, schedule a call and meet me virtually so I can help you put your financial plan on the right path.