Your money during a time of crisis
Updated: Apr 3
We have a pandemic on our hands. The World Health Organization officially declared COVID-19 “the coronavirus” a disease that has become widespread throughout the world. This declaration has side effects; it could accelerate the existing stress in global markets and trade, increase travel restrictions, and potentially lead to more quarantines. These side effects will impact your ability to save your income and invest your savings.
There are some benefits for you that have developed with recent market volatility and a flight to safety by investors in financial markets. Before I get into these details, here are tips from the Centers of Disease Control and Prevention to protect yourself from the virus. Please keep those affected by the disease in your thoughts/prayers!
You should focus on saving more money during this pandemic. As the CDC states, this virus is mainly spread person-to-person. Avoiding crowds and physical contact with others is a good idea. Because of this, you have likely seen industry conferences canceled, cheaper flight prices, work-from-home measures from your employer, and other interpersonal functions canceled. This will slow down consumer spending, which is a largest driver of economic activity. Your variable expenses (discretionary expenses like shopping, travel, playing golf, eating at restaurants, and general “fun”) should decrease during a time like this.
Further, lower interest rates give you the opportunity to reduce some of your fixed expenses. See the chart below that illustrates how the benchmark 10 year US Treasury note interest rate has changed over the last 3 years.
Credit: WSJ Markets — March 11th 2020 1:35p
As you can see, rates are more than 3X lower than they were 3 years ago. The main drivers of rate decreases are the Federal Reserve’s interest rate policy and nervous investors. This dynamic gives you the opportunity to refinance any debt you have to save money on interest over time. Some examples of “refinanceable” (yes, it’s a made up word) debts are:
Credit card debt (by using a personal loan)
Let’s chat if you are unsure how to find or approach refinancing solutions.
Due to the uncertainty of future economic growth caused by COVID-19 fears, the stock market has seen a significant pullback since mid-February. This gives you a good opportunity to purchase company stocks at cheaper prices. The chart below shows the price decline since mid-February in the S&P 500.
Source: WSJ Markets — 03/11/2020 2:03pm
Investing money during periods of panic and uncertainty is easier said than done, but it is essential for positive long term returns. There are a number of high quality companies with exceptional leaders, a responsible global footprint, and large profit margins that are on a “clearance sale” until some certainty about the virus’s impact is more well defined. If you do decide to invest, it may be wise to earmark cash to continue to purchase if the broader market falls another 10, 20, 30, or 40+%. This means something different to everyone, so if you’re unsure how to evaluate this general advice in your individual portfolio, let’s have a conversation!
Stay safe during this time of crisis and be sure to consider these ideas to cut down on your variable expenses, reduce fixed expenses, and go bargain shopping for company stocks.