These days there is no shortage of news and commentary about the Covid-19 pandemic and what it means. If you are like me, it can get to be a bit much sometimes. But, with unemployment around 14.7 percent and business profits disrupted by changes in spending patterns, it’s clear that this disease is a factor you have to consider when evaluating your financial plans.
So, what should you do about the current state of the Covid Crisis? To decide think through these 3 questions:
1. Are we done with the first wave of COVID-19?
If we are done, then you can “move on” with your financial plans. But, sadly no, we are probably not done with the virus. Data suggests that the number of cases varies from week to week, but we remain at about 20,000 new cases each day since late March
2. How likely are we to get a second wave of COVID-19?
Based on the history of influenza epidemics in the past, most experts expect a second wave of infections as the weather cools and people spend more time in doors. According to Dr. Michael Osterholm, infectious disease expert at the University of Minnesota, a second wave in the fall could be pretty ugly.
“Given previous influenza pandemics, and this not an influenza virus so we don’t know for certain it will act like that, but if it did, by far the second wave was the worst one of each of the pandemics,” Osterholm said. “A second wave in late summer or early fall that lasts three or four months could make everything we’ve experienced so far seem mild.”
3. If we get a second wave of COVID-19 what should I do for my investments?
Well, the answer depends on your specific situation and goals. A second wave of disease will likely lead to further shutdowns in business and industry. The longer the challenge of the disease persists, the more damage will be done to the economy. So far, the government has provided money to citizens to offset lost income. Will that trend continue if there is a second wave of illness? Who can say?
If you have financial goals in the next few months, and a second wave of disease creates more damage to the economy, it will likely cause you problems. This is the reason that I ALWAYS recommend that my clients keep a cash emergency fund on hand to cover short-term goals.
Specifically you should:
Keep 6-12 months of basic monthly needs in cash just in case of emergency.
Keep any funds you think you will need in the next 18 months in cash.
Keep any funds you think you will need over the next 18 to 36 months in short-term income producing instruments. (Expect to earn 2% or 3% interest per year.)
If you are saving for long-term goals, like retirement in 10 or more years, the economic set-back created by the COVID-19 event presents a chance to buy stocks on sale. So, if you can, you should plan to INCREASE your retirement contributions with the goal of saving 20 percent of your gross earnings each year.
Once you have maxed out on what you need in savings, make sure you have a prudent allocation of investments. Be sure to have a healthy mix of U.S. stocks.
Remember, for the last 100 years or so the S&P 500 has averaged about 10.35 percent annual growth with dividends reinvested. That includes the Great Depression, World War II, Vietnam, the Tech Crash, the Great Recession and the Covid Crash of 2020.
So, since you want your retirement money to grow faster than inflation. And since you have quite a few years (a 60 year-old couple will likely have at least one partner reach age 90) before you will spend all your money, everybody needs to own stocks.
But, which stocks?
What instrument should you use to own your stocks?
How often should your review and adjust your holdings?
These are all great questions. And I suggest that you will benefit greatly from discussing these topics with an experienced, well-trained, professional financial planner.
If you would like to talk with me about your financial goals and COVID-19 click the link below to set up a call.
A great place to start looking for the right advisor is to talk with a couple CERTIFIED FINANCIAL PLANNER™ professionals.
To find a CFP® professional near you, start your search here.
As you visit with financial planners, I suggest a couple things to check:
Is the advisor always the client’s advocate – a fiduciary advisor?
Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.
These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.
A fiduciary, fee-only, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.
Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.
If this article has you thinking about your own circumstances, contact my office at firstname.lastname@example.org. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.