- August 4, 2020
- Posted by: SMEST
- Category: General
No one anticipates these times. We are all in it together! We want to reach out with some perspective and guidance on your personal finances.
Don’t let stress short-circuit your decisions
Stress often leads us to feel very action-oriented. We skip over the thinking and feeling and get right to doing. We encourage you, as we are doing ourselves, to slow down before making any decisions and acknowledge how you’re thinking and feeling before you take action. Don’t hesitate to reach out to your financial planner so that you can talk things through before you make any big moves.
Will your income change in the short-term or mid-term?
Consider whether your income may change in the coming weeks or months. If there’s a decent chance that your income could drop, begin adjusting your budget right away and estimate whether your reduced income will be sufficient to cover your expenses.
If income won’t be enough, make a list of your next-best places to access cash to cover expenses — emergency fund, equity portfolios, low-interest personal loans, credit cards, etc.
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You may also want to look into employer and government benefits, like sick leave, unemployment insurance, and paid family leave.
Reduce expenses for the next few months
Whether you anticipate your income will drop or not, it’s a good idea to review your budget and make some adjustments to reduce expenses for the next three to six months. Make sure to capture any money saved in your emergency fund if you can. These changes aren’t forever, so figure out what you can reasonably do in the short-term.
Stock up on cash
If you are working with a financial planner, you likely already have a well-stocked emergency fund. This is what it’s for! We hope it’s giving you comfort to have cash stashed away if you need it.
If your emergency fund isn’t quite full, do what you can to reduce expenses short-term and put a little extra cash in the bank. For example, if you have to cancel travel plans, you should be able to get full refunds, and you can put that cash in your emergency fund. Every little bit helps.
We have to admit this market has literally taken our breath away several times over the last few weeks. We have seen financial managers manage client money through the Great Recession when the market dropped 57%, but the last few weeks have been something else! If you’re freaked out and want to stop the bleeding in your portfolio, We get it. We have those same feelings. Our brains are wired to want to take action and protect us from loss.
We do still, however, continue to believe that markets will continue to act like markets … more volatility, more drops, intermittent recovery days, maybe a false recovery in there (just to mess with our heads), and ultimate recovery. Volatility and recessions are the prices we pay for the potential long-term gains that the market has historically provided.
If you’re thinking about getting out of the market, We encourage you to pause and think about how that will play out and when you’ll get back in.
If you get out when the averages are at say 19,000, are you going to buy back in when it hits 15,000? What if it then goes to 12,000? Are you going to get back out to stem losses or buy more? And then maybe the market eventually recovers and gets back to 30,000. Were you in on the recovery? Or did it feel too late to get back in once it was climbing? Or did it feel like a “false recovery” so you stayed out?
Our emotions are notoriously terrible at driving the right investment decisions, but they’re so strong!
If you don’t need to use your portfolio for 10+ years, as long as it’s substantially higher 10+ years from now, you’re in good shape. What we generally are aiming for is that your portfolio doubles about every 10 years.
Even if you invested every dollar right before the Great Recession hit and the market dropped 57%, your money still would have come close to doubling over that 10-year time period.
So instead of watching your portfolio drop and feeling like a sitting duck, remind yourself that you are strategically staying invested for the long term based on historical data that has shown the likelihood of an eventual market recovery to be very strong.
Optimize your debt
With interest rates dropping, there have been some excellent mortgage rates available recently. Especially if your interest rate is on higher side, it could be an excellent time to refinance.
But with such low rates recently, demand for refinancing has been exceptionally high and rates have popped up a bit because of it.
It’s also a good idea to have a clear picture of what debt you have available to you, just in case you need it.