Suddenly a big “What if?” has become a big “What now?” Not only has the longest economic expansion in recent American history come to an abrupt end as a result of the COVID-19 pandemic, but economies around the world have slowed significantly as people stay home and businesses close to weather a global health crisis the likes of which hasn’t been seen in a century.
The vast scope, suddenness and seriousness of the coronavirus crisis leave us to navigate uncharted territory in virtually every aspect of our lives. And some of the most pressing questions people have relate to their financial lives: What does all this mean for me financially? What should – and shouldn’t – I be doing now to protect and position my assets going forward?
One silver lining to the disruption created by quarantines, sheltering in place and social distancing is that it creates plenty of time to think through the steps you need to take to put your household finances and assets in the best possible position in light of the economic realities we’re already facing – and are likely to face in the near future – rather than acting quickly and rashly.
First and foremost, resist the urge to let emotions dictate how you manage your money and assets in the face of this economic downturn.
Here are some suggested steps to think about:
1 Maintain perspective. As painful as they can be, stock market downturns and recessions are temporary. By definition, a recession is at least two consecutive quarters of economic decline. We’re not there yet. But if the economy does in fact drop into recession, it’s vital to keep in mind that if history provides any precedent, it shouldn’t last as long as expansions tend to last. Since 1900, the average recession has lasted 15 months, and the average expansion has lasted 48 months.
2 Don’t sell your investments, if possible. Selling investments when their value is down should be viewed as an absolute last resort. History suggests that the value of your investments will rebound sooner rather than later. So, unless there’s no other option to create cash flow to make ends meet, exercise patience. That holds true for stock portfolios, retirement accounts and pretty much any investment vehicle linked to the performance of the stock market.
3 If you were laid off from your job, know what you are owed for your final paycheck, vacation time, severance pay and, possibly, commissions. If you’re not clear about any one of these, check out the employee handbook, if one exists, or speak with someone in human resources.
Also find out when and how you will get important tax documents: W-2s, 1099s, K-1s, etc. Be sure you have any documents related to the company’s retirement and investment plans in which you may have been involved, including stock options, 401(k)s, profit-sharing, pensions, etc.
It’s also critical to know your rights related to benefits, including health insurance, COBRA and/or Medicare, as well as unemployment insurance and other potentially portable benefits such as life and disability insurance.
4 Take advantage of opportunities to dollar-cost average. To blunt the impact of drops in the value of retirement accounts, college savings plans and investment portfolios, continue to invest a fixed amount in these accounts. This maneuver, known as dollar-cost-averaging, essentially enables you to take advantage of a buying opportunity when prices are lower.
5 Revisit your financial plan with your financial adviser – or hire a financial planner to create a plan for you. A financial plan should include contingency strategies for when what-ifs like a weakening stock market and economy become reality. Besides providing a script for how your assets will be handled during an economic downturn, a financial plan provides a compass during challenging economic times.
Even amid all the virus-related restrictions, many financial professionals are on call and available for virtual or phone conversations to help both existing and new clients.
JASON E. SIPERSTEIN, CFA, CFP, is the president of the Financial Planning Association of Rhode Island and of Eliot Rose Wealth Management. He can be reached by email at email@example.com.