CoronaVirus (COVID-19) Part II
Updated: Apr 29, 2020
Nearly 3-weeks ago I wrote about the Coronavirus and its affect on the markets. To be honest, I could never in my wildest dreams have come to the conclusion that we would be in the state we are in today. Statewide curfews, closing of voting polling places, schools, restaurants, bars, gyms, and other social gathering places seems like something only Hollywood could make up, but this is real life now.
Three weeks ago I thought the stock markets had taken a beating, little did I know that beating was just round-one. I hope we’re nearing the end of all this because we have entered bear-market territory (signified by a market decline of 20% or more – and we are definitely in the more category) and with all the business closures and even country closures, the probability of a worldwide recession is very high.
With all of this, however, I am still not concerned and I am absolutely positively not recommending for anyone to take drastic measures like selling out of their investment positions to bury money in the back yard or under their mattress. I honestly think that if we ever got to thatpoint, the last thing any of us would be concerned with is our paper money.
If you are young, this is a great time to either start saving or ramp up your savings. In the long term, you will be glad you did when you look back on how cheaply you were able to invest.
If you are middle-aged, this is still a great time to invest and save. More importantly, this is the best time to get serious about what your future looks like. If you’re in your 40s or 50s, you’ve been through tough economic times before and this is no different, but now your older, you have less time to recover, so having a plan in place for your financial future is more important now than ever before.
If you’re in retirement, your concern is real. Retirement savings are most likely taking a hit and if you are with an advisor who hasn’t thought through times like these with your money, you may be forced to sell assets at a loss just to cover your daily living expenses. This is the most detrimental thing to a retiree’s portfolio and causes irreparable harm when considering how long your money can last. If your adviser hasn’t considered a plan that includes cash reserves to make it through times like these, then your adviser isn’t doing what is best for you and you should consider an adviser who understands that cash is important in a retiree’s portfolio.
As I mentioned before, I am not concerned by all of this hysteria. In the end, I do believe that this is mostly an emotionally driven overreaction to an uncertainty. We don’t know what tomorrow will be like, so our brains immediately go to the worst-case scenario and we react on that. This is most likely why stores are out of toilet paper. Who wants to be quarantined in their home with no toilet paper? Same goes for the stock market. Who wants to be caught as the last person holding the bag? Big institutions certainly don’t, so they sell at the first sign of market weakness to lock in their gains. This creates downward pressure on equities and others pick up on that and so they sell. This further fuels selling and everything eventually snowballs into what we have today.
Eventually things will level-out, the news will start getting better on lower infection rates, more people recovering, and governments loosening restrictions. The Federal government will be injecting cash into the system and things will gradually go back to normal. Once that happens, the institutions will need to start investing again and they will see great buying opportunities everywhere. This will put pressure on the market to increase prices and the market will come back. The only question is when will this happen. No one knows, so that is why you have to start planning and saving now, because once the opportunity is lost, it’s gone until the next whatever causes another market dive.
So, my last word of advice, is this: Find a financial planner worth their salt, get a financial plan in place, and feel confident that even during times like these you can make it through.
In Matthew 6:26-27 the Bible tells us not to worry, for our heavenly Father will provide for us, it reads – "26 Look at the birds of the air; they do not sow or reap or store away in barns, and yet your heavenly Father feeds them. Are you not much more valuable than they? 27 Can any one of you by worrying add a single hour to your life?"