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Our world, as we’ve known it, has changed dramatically over the last few weeks. Likely, forever.
If you have children, and like me live in Alberta, you can now add homeschooling to your c.v. You and your spouse are now living and working in this same space 24/7 practising the soon-to-be-normalized cultural rite of social isolation.
When you do step outside, gratefully breathing in fresh air, looking up as a neighbour passes and takes a step back, yet still cheerfully waving, you’re reminded again of the new normal: social distancing.
Back in your home, you open up your laptop only to be inundated with Covid-19 news headlines, across every possible platform, and overwhelmed by the inconceivable number of people being felled by the novel coronavirus.
The Zombie Apocalypse
Unsurprisingly, global financial markets, reflecting the fear, anxiety and uncertainty of investors, are in free fall — the TSX and S&P were down 34% and 32% respectively the week of March 20th — cliff-diving off record highs of just a month ago. Reporting of these numbers is closely followed with economists’ dire predictions of a recession once the Covid-19 crisis subsides. It’s surreal. I can’t shake the feeling I’m an extra in a Zombie apocalypse movie. If only.
How do we cope as the once relatively reliable world we knew, just a few short weeks ago, continues to experience seismic shifts that shake and loosen the very foundation supporting our lives?
Keep calm, Carry on
We can only control what’s within our reach. This is my mantra; only now, I repeat it several times a day. Here are some tips to help cope with day-to-day changes:
Emergency Fund
Practically speaking, ensure you have an emergency fund. Typically, you’re looking to sock away three to six months of living expenses for the “just in case” scenario. Don’t have it now? Don’t panic. Take a good hard look at your monthly expenses and incorporate this savings target into your budget. Anticipating an income tax refund? Earmark a portion of these dollars and deposit them into a high-interest savings account. Preferably one that’s CDIC insured.
Resist the temptation to save for your rainy day with extra monthly dollars. There’s rarely spare change at the end of the month; be intentional, add this line item to your budget. Even a few dollars to kickstart the account will make a difference in the long run.
Budgets
Do you have one? If not, this is a great time to put one together. Track ALL of your expenses for a month or two. Do you see any trends? Any obvious places you can trim expenses? Make it happen.
One of my favourite hacks is around groceries and meal planning. Each week, I shop in my freezer and pantry compiling a list of recipes for the week. Not only does it take the stress out of meal planning (and save money on takeout), but it limits trips to the grocery store.
Financial Support
More than one million Canadians have now applied for Employment Insurance. You may find yourself without work; caring for a loved one battling Covid-19 or staying home with your children due to school or daycare closures. The federal government will be offering financial support for 16 weeks, beginning in April (the online portal is scheduled to launch on April 6th) and payments will be retroactive to March 15th, through its COVID-19 Economic Response Plan.
Managing your portfolio performance
I review our portfolio on a daily basis. It’s not really something I should do, and given the performance of the last month, it may be a habit I soon break.
The last month has been startling; I’ve watched our collective portfolios steeply decline, briefly ascend only to decline again. It’s unbelievably tempting to hop off the rollercoaster, almost primal, really, sell what remains and seek shelter on the sidelines.
That’s precisely what you don’t want to do. Here’s why: at some point, your risk profile was evaluated and, based on that analysis, you or your financial advisor invested your hard-earned cash in a portfolio aligned with it. It’s quite possible you overestimated your appetite for risk — we we’re riding on the back of a barely bucking 11-year Bull market — but now (*in my opinion) is not the time to retreat. To do so will permanently realize the loss in your portfolio.
Besides, how will you know when to reinvest? Market timing is inherently dangerous and, arguably, consistently impossible.Y our risk profile didn’t change in the last 30 days; neither should your approach to investing. When you make the call to invest in the stock market, you’re taking on a calculated risk, defined in economic terms as an equity risk premium. The premium is the reward you receive for investing in the stock market instead of a risk-free investment vehicle (i.e. money market fund).
Most of us can’t afford the luxury of “risk-free” investments; the returns are just too low. Unless you envision extremely spartan Golden Years, in the absence of inflation (which robs your meagre returns), this just isn’t realistic. Learn more about risk and investing.
Be fearful when others are greedy, greedy when others are fearful (Warren Buffett)
Shift your mindset. If, right now, you automatically contribute a portion of your paycheque or budget to investments, it’s worth continuing to do so. Think of it this way: your favourite retailer has, for a limited time, marked merchandise down 30%. It will likely fall even further over the next several months. This is the stuff you love at bargain prices.
Continuing to invest, regardless of market performance, is called dollar cost averaging. Right now, you’re purchasing shares of stocks, mutual funds, index funds or ETFs (exchange traded funds) at deeply discounted prices. Dollar cost averaging or DRIP (dividend reinvestment plans) investing will ultimately provide future you with a greater share of profits from the companies you’re investing in today.
A rule of thumb: plan for equity investments (shares in a company or stocks) to have a long-term horizon: eight to 10 years. This timeline allows you to board the rollercoaster without enduring as much panic when markets decline. Make no mistake about it, they will decline.
But they will also likely go up, they always have in the past. I’ll leave you with words of wisdom from the Oracle of Omaha. This quote comes from the annual report shared on Feb.22, 2020. “Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater.” He continues that the combination of what he calls “The American Tailwind” and “compounding wonders” will make equities “the much better long-term choice for the individual who does not use borrowed money and who can control his or her emotions. Others? Beware!”
Carrie Hunter is the founder and writer of the personal finance blog, PoundWiseandPennyPrudent.com. A passionate advocate for financial literacy, Carrie writes, speaks and facilitates workshops with a singular goal: to simplify the language of money. A self-taught money expert, Carrie is completing her designation as an Accredited Financial Canada Counsellor®. This blog originally ran in March and is republished on the Hub with her permission.
