Scary Times!
A couple of months after I started at Fidelity Investments in the year 2000, our country suffered from the .com bubble crash. By the way, this is right after we survived the Y2K scare! Not only did we survive, but we figured out which technology companies were sustainable and which ones weren’t. Many of us have invested in those companies and have done quite well. Only 8 years later, our country suffered from the housing collapse. This collapse was systemic and even more severe. Not only did we suffer tremendous financial loss, but we also lost faith in our country’s financial institutions. It shook many of us to our core. By March 2009, the stock market started a recovery that has lasted almost 11 years. Regulations have changed, companies have merger to become stronger, and the housing market today is as strong as ever.
Now we find ourselves enduring the adverse effects of the coronavirus. We’re all basically quarantined! Restaurants, gyms, hair salons, and many other small businesses are temporarily closed. The entire travel and hospitality industries have been shut down and are currently laying off employees. This great country has almost come to a complete stop. We’ve never seen anything like this. All of a sudden, we’re hiding grandparents, social distancing, and incredibly suspicious of anyone with a cough or sneeze. But before we panic, let’s keep several things in mind. First of all, our country is incredibly resilient. We’ve been through much worse, including years of world wars and the great depression. Secondly, this is temporary – just like all the other unknown viruses we’ve come across. Our scientists and medical professionals are working around the clock to come up with a vaccine. Most people are taking precautions to help slow the spread of this virus. We’re all in this together. Finally, our underlying economy is still strong, plus we have low interest rates and oil prices. As long as this doesn’t go on too long, we’ll bounce right back.
Let’s talk about finances during this time. First and foremost, DO NOT PANIC!!! Don’t act out of emotion and do things you’ll regret later, like selling everything at the lowest possible point. The market will recover; however, TIME MATTERS. I can’t say it enough that if you need your money in the short term, 1-3 years, it shouldn’t be in the market. It should be in a savings account or CD so you don’t lose it! If you need your money in the intermediate time frame, it should be in a moderate portfolio. If you don’t need your money for more than ten years, you have time to ride out these market ups and downs. Make sure you’re in good solid investments and use these dips to buy in a bit more.
As for right now and moving forward, start out by taking a deep breath and don’t watch the market until this clears up. The market is doing it’s job by trying to figure out a bottom. That’s the nature of the beast, like it or not! Here’s a few planning tips for now and once the dust settles:
Cash is king right now. These time periods remind all of us why we need a rainy-day fund (3 to 6 months of essential expenses). I have an insatiable shoe fetish but even I’m willing to painfully forgo a pair of shoes to make sure I have enough cash. This is a perfect opportunity to save the cash you would normally be spending on entertainment like restaurants and movies. However, I can see alcohol consumption increasing, especially if you’re quarantined with kids for a month! Nevertheless, build up your cash!
No one knows where the bottom is, so don’t try to time the market. If you have the opportunity in your long-term accounts, try to set some parameters, such as a 10 - 20% drop in the market (which is where we are now), and buy in a little bit. Don’t go nuts and make sure these are solid investments. As I’ve mentioned previously, when you constantly contribute to your investments, you’re buying at the highs, lows, and everywhere in between. That’s called dollar cost averaging. Nothing wrong with buying more on a dip. Don’t worry about getting to the exact bottom, just stick to your personal plan.
If you happen to have some cash to invest right now, guess what? Good, solid companies are on sale right now!!! Pick some companies that are down but aren’t going out of business because of this virus. Are we all going to stop using Google, Microsoft, Apple, etc. because we’re sick? Proctor & Gamble is certainly happy to be producing Charmin right now! I’m not going to recommend specific companies; however, there are some fantastic buys out there.
Moving forward - believe it not, the market was at an all time high earlier this year. Take the time at least once a year to review your investments, either by yourself or with a financial advisor. Consider skimming off some profits during these incredible market highs to free up cash and rebalance your portfolio. If you’re comfortable with 60% in stocks and 40% in bonds/cash, the market highs might cause your investments to be more aggressive than you like. Because of the growth of the market, you might all of a sudden be 70% in stocks and only 30% in bonds/cash. When you rebalance, you’re selling at a high and buying at a low. If you’re not comfortable with how to do this, please speak to a financial advisor.
Remember, we’re tough Americans! We’re not only going to make it through this, we’re going to use our ingenuity to excel once again. Stay healthy and calm. Feel free to email me at info@carenlaverty.com if you have any questions.