“Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.” — Victor Frankl
Life is full of unexpected events. It is often difficult not to overreact when writing about things as they are unfolding, and the same applies to finances. It can be difficult to keep from overreacting when our finances have been affected. Fear can cause us to make decisions in the heat of the moment that negatively affect our finances for years to come.
Our new reality
The threat of COVID-19 coronavirus is scary and real. However, it also provides an opportunity to think about how we respond to anxiety. Specifically, I want us to think about how we can handle the anxiety that comes when the stock market has a swift and dramatic drop. It’s challenging to handle a reduced paycheck, a spouse who has been furloughed, or no paycheck at all, especially in the midst of social distancing and all that’s involved in protecting our health.
Unemployment affects women differently
You may have seen the new unemployment numbers. According to Bureau of Labor, almost 60% of the jobs lost belong to women. Also, women comprise the majority of health and social care workers globally (70% in 104 countries analyzed by the World Health Organization). They are on the front lines in the fight against COVID-19. In addition, the International Labor Organization (ILO) said that globally, women perform 76.2% of total hours of unpaid care work, more than three-times as much as men.
The above data shows how COVID-19 has significantly impacted women. Now, your worry is compounding, and who isn’t worrying? Thankfully, you have a financial advisor, a fiduciary, who drafted a plan for you that provides some perspective during this challenging time. If you are not currently working with a trusted advisor, there are steps you can take, and should take, to stay on track amid the threat of a prolonged economic downturn.
Going back to the basics
So, let’s seize this occasion to refresh our collective memory on how essential “Going Back to the Basics” really is. Decide what’s important to you. Whatever you decide to do, you need to factor in the rising healthcare costs, increasing longevity, low interest rates, and a fast-changing global economy.
Devise a Spending Plan. Control starts with a Spending Plan, which is dealing with the things you know—such as how much income is coming in—and dealing with what you can control—like how much is going out.
My client Jen, who is an HR Manager, called me the other day saying she’d furloughed half of her company’s employees. She was fascinated to learn that the highly paid employees end up worse off than those who make less. She said, “It doesn’t matter if you make half a million dollars a year in income if you spend $600 thousand. You are a lot poorer than those who only made $75,000 a year and only spend $50,000.” This simply shows that we need to live below our means, not above.
Assessing your portfolio
With regards to your portfolio and the market’s dramatic rise and fall, this is where humility plays a great role. Humility means accepting the fact that you can’t control the decisions of buyers and sellers. It’s hard to figure out the highest and lowest point in the financial markets, so it’s best to stay invested in the market regardless of whether it’s a bull or a bear market. In fact, research conducted by JP Morgan shows that if you missed the 10 best days of the market over a 20-year period—just 10 days out of 4,910 trading days over that time—your returns would have been cut in half. A $10,000 investment that would have been worth $32,421 if fully invested over those 20 years would have been worth just $16,180 instead.
If you are already investing in your 401(k), try to maximize your contributions. If you haven’t participated, now is the time to take advantage and start contributing.
If you’ve heard the so-called financial experts touting an opportunity to profit from the coronavirus scare directly by buying stock in certain pharmaceutical firms, and in companies that are making ventilators, sanitizers, don’t fall for it! Run, Forest, Run! Or what about a so-called “Stay at Home” portfolio composed of delivery outfits, digital viewing, and conferencing firms, and of course, Netflix. Ladies—don’t fall for anything like that. What happens to that portfolio after we’re no longer stuck at home?
I’m optimistic that scientists will work something out. However, I’m more confident in the ingenuity of the American people and the fact that we live in America, the land of the brave and BOGO (Buy One Get One Free). I can’t wait to see the rush to SPEND and SHOP as soon as the whistle is blown … AMERICA is OPEN for BUSINESS!!
Meanwhile, ladies—for such a time as this, let’s wash our hands. While we are at it, let’s allow hand-washing to become a special moment in which we consciously use this time to reflect and to grow!
By Arlene Brown
*Advisory services offered through Paul Winkler, Inc. (‘PWI’), a Registered Investment Advisor. PWI does not provide tax or legal advice: please consult your tax or legal advisor regarding your particular situation. This information is provided for informational purposes only and should not be construed to be a solicitation for the purchase of sale of any securities.