Five Lessons from COVID
The year 2020 was like no other. The novel coronavirus spread from its origin in China, and governments worldwide soon took measures to protect their citizens. Lockdowns paralyzed the economy. Schools closed. Employees worked from home. We all got very familiar with Zoom. COVID-19 infected millions around the world, and thousands died.
The longest bull market ever came to a screeching halt with the fastest drop of over 20%. Stocks kept falling until the nadir on March 23 – down 35%. However, with tremendous support from Congress and the Federal Reserve, stocks soon rallied. The S & P 500 index finished the year up 16.3%.
We’re not out of the woods yet, but as vaccinations rise, infection rates are falling, and so death rates. There’s light at the end of the tunnel. So what can we take away as financial lessons thus far?
- Don’t Panic
Nothing good ever happens if you panic. The swiftness of the fall in stocks and their corresponding quick rise shows that kneejerk reactions can be deadly for your finances. Scary episodes like COVID, 9/11, Iraq’s invasion of Kuwait, even the Japanese attack on Pearl Harbor can be sudden and quite frightening. The world has changed. However, history has shown us time again that it pays to step back, reevaluate the situation and use caution when making any portfolio changes.
- Stay Invested
Continuing from above, it always pays to stick to your plan. Markets can be very volatile amid disasters and geopolitical events, and you can easily get bruised by selling at a low and later buying at a high. Anxiety can run high, and I understand how difficult it can be to sit idly watching your portfolio drop. However, any rash trading will almost always be costly in the long-term. If you must, sell a little bit of something to make you feel better.
- Right Fit Your Portfolio Now
Determine the amount of risk you want to take and stick to your plan. Do it before the bad happens. Now is an excellent time for you to gauge how much risk you want to take. Think back to what you did last March. Did you panic and sell? Did you boldly buy? Did you even notice? After this strong comeback by stocks, now is a good time to review your portfolio and determine what will make you comfortable. How much in stocks? Bonds? Foreign stocks? High yield bonds? What combination will you be able to live with when the next “COVID” happens?
- Have an Emergency Fund
Financial planners recommend keeping three to six months of living expenses in a safe place for emergencies. Emergencies are “whens,” not “ifs.” They will happen. You just don’t know when. The COVID pandemic illustrated how many Americans were caught short on an emergency fund. Keep your emergency funds in a safe place. With interest rates close to zero at big banks, look to online savings accounts from American Express, Marcus, Ally, and others for rates around 0.50%. Setup is easy and almost always free. Make sure the FDIC insures your choice.
- Live your life
It may look strange and out of place for me to talk about life in this investment piece. But what is financial planning if it isn’t all about life? We enhance clients’ life satisfaction by setting goals, making plans, and funding them. Life is short. COVID, like other sudden, tragic events, has taught us that setbacks can occur at any moment. Nature will run its course and doesn’t care about our economy, goals, and dreams. Save, yes. Plan, yes. But don’t forget to live today too. Money is only valuable as a means to live your best life.
I welcome your comments and questions.
Have a great week!
Sincerely,
Henry
