I've had an influx of questions from readers in the last two weeks. Luckily a lot of them can be divided into categories and I can just answer them at once. Here's a money Q&A about COVID-19, stock market crashes and preparing for emergencies.
Oh hai there. It's been a crazy couple of weeks, with stock market volatility and increasing concerns about COVID-19. I've had quite a few reader questions about how I'm handling things — many of which share common themes. So, rather than answer all the questions individually, I thought I'd just write this post and send the links.
Update 5/10/2020: It's been almost two months since I posted this. While April was a month with only a small cut to my client work, May is shaping up to be a 50% drop in work. Most of my clients are cutting back as they re-assess their strategies (and affiliate earnings). I'm fortunate in that this still doesn't change a whole lot for me. I have a PPP loan and I have a nice cushion. The enviable position of being somewhat prepared and lucky enough to get the PPP funding has helped. As a result, this drop in work will actually result in me being able to work on other projects and re-position myself for the future. However, I did take the step of cutting my contributions to accounts like my long-term emergency and travel goals by half. I kept the contributions to the HSA and the IRA at their regular levels.
Obviously, I can't give individual advice. I'm not a financial professional (even though I'm almost finished with my MBA) and I don't know about your specific circumstances anyway. But, here's what I do know about what I'm doing. Maybe you'll get some value from it.
How is COVID-19 Impacting Your Finances? Are You Taking Steps to Protect It?
This was an interesting question because I work from home as a freelancer. As a result, COVID-19 isn't really having an impact on my income. However, I have been wasting time trying to change travel plans. That's an issue. Some companies are great, offering travel vouchers and waiving change fees. Others, not so much. I'm still waiting to see how things play out for the spring break trip I'm supposed to take with my son. Chances are, though, that we'll need to cancel.
So, no, COVID-19 isn't having a big impact on my finances.
Side Note: Freelancing Schedule is Changing Up
As a side note, I have had to make changes to my freelancing schedule for a few days. A number of clients want COVID-19 content, so I've had to shift things around and the batching looks a little different for me right now.
So, while I'm not taking extra special steps to protect my income during this time, I am making room to capitalize on the opportunities. This will allow me to get a little extra padding in my accounts, something that's always important when you have a variable income.
How Do You Keep from Freaking Out During a Stock Market Crash?
I receive various incarnations of this question, for obvious reasons. With all the volatility going on, it's common to wonder how to stay calm.
My situation is ideal right now because:
- I'm relatively young
- My income isn't being impacted
- At the current levels, even if I sell, I still realize a pretty good gain
- Even if I do have to sell at a loss, I'm in a position where it's ok, and I make myself feel better by reminding myself that I get a tax deduction.
- I shifted a portion of my son's 529 into less-risky assets a few months ago — enough to pay for his first year of college, starting in fall 2021
Because of all this, it's relatively easy for me to remain calm when the stock market crashes.
Some of the reminders that can help you remain calm at this time might include:
The Market is Likely to Recover
Historically, the market as a whole recovers and heads higher over time. If you can ride it out, you're likely to see better results down the road. This is especially true because our leadership is willing to do whatever it takes to prop up the markets and the financial system.
As an indexer, this helps me even more. Even if individual stocks don't recover, a broad-based index fund or ETF is likely to be fine. I'm pretty confident that this, too, shall pass.
And, if it doesn't, there are bigger problems afoot than the market.
It's Not Necessary to Liquidate Everything
Even if you have to take some money out, you might not have to take everything out. I got nervous enough a couple of months ago to figure out what my son would need for college his first year and convert that to less risky assets. Did I know when a stock market crash would happen? No. Was I a bit nervous and just wanting to protect some of the money I knew I'd need within two years? Yes.
Right now, you might not need to liquidate everything. It can make sense to do things slower. You might lock in some losses, but they will be fewer than if you panic and sell everything right now.
It doesn't help now, but a bucket strategy can be a solid way to reduce the impact of some of these situations. Something to keep in mind for the future.
I Still Have What I Need
A lot of people are bummed about the blow the market has delivered to their net worth. Because I am, apparently, a bad PF blogger, I don't really track my net worth. Instead, I'm more worried about my lifestyle goals.
Chances are, as long as I keep dollar-cost averaging through this time, and just keep with my basic spending plan, I'll be able to meet my current and future lifestyle goals. There's no need to beat the market — I just need to be able to do what I do.
In the future, a stock market crash might impact me more, but for now, I'm well-positioned to not worry much about it. So I don't.
Other people might not be in my position, so they might have more cause for concern. But, before you get too worried about a stock market crash, ask yourself if you still have what you need. Are you still on track for your goals after we get through this? If the answer is yes, that might help you stay calm.
What Things Are You Stockpiling Due to COVID-19?
In general, every six weeks or so, I visit the store and get regular staples and other things that aren't conducive to grocery delivery. This COVID-19 situation hasn't changed that.
My toilet paper (and paper towels) are on Subscribe & Save with Amazon, so these things just arrive. Serendipitously, my latest regular toilet paper shipment arrived a week ago.
I did end up in the store the day after the President's evening address and it was busier than usual. (And I did look at the toilet paper aisle, just because.)
Stopped @ store on my way home to get a normal amount of staples on a regular schedule. I usually go to the store every 6 weeks or so to get things I don’t normally get thru delivery. Crazy packed. “I’ve not seen something like this for a long time,” the checker said. #COVID19
— Miranda Marquit, #FightForFreelancers, MBA (@MMarquit) March 12, 2020
However, I just did the usual, for the most part. The only concession I made to this situation was to take advantage of a “Buy 1, Get 2 Free” deal on meat and buy some frozen fruit. These things can be put in the freezer and help me feed my son in the event we end up unable to leave the house. Everything else I bought was business as usual.
It's worth noting, though, that my upbringing in the Church of Jesus Christ of Latter-day Saints has put a strong “preparedness” streak in me. So, I generally have foodstuffs and other supplies to last me several weeks, regardless of what's going on. I also have the privilege of living half a mile from my parents who abide by the recommendation to have a full year's worth of food storage.
So, basically, I'm good. Unless society completely breaks down, I'm set to weather this crisis as needed because I've been fortunate enough to have the resources available to me to prepare as I go. I don't need to take extraordinary measures. There are soap refills, wipes, paper products and food for me to use. My makeup is even well-stocked.
How Are You Investing Your Money Right Now?
I got this question a lot. So, all of my automatic contributions to my various accounts, from my emergency fund to my travel fund to my IRA continue to proceed as normal. I'm still dollar-cost averaging with the same amounts as always.
There is some cash I have set aside to buy more shares of index funds if I feel like things drop enough. There are a couple of dividend aristocrats that I might purchase in the coming days or weeks if I think I can get a good deal.
I know people are looking at things like consumer goods stocks (although those are surging right now and maybe wait?) and trying to figure out if it's worth purchasing some hospitality and travel industry stocks soon as share prices plummet. These might be worth adding to the portfolio. I don't know. Individual stocks aren't really my jam. I have a few, but I don't do much with them.
As with most things in my life right now, my investing is business as usual. I'm still dollar-cost averaging into index funds and ETFs. There's some reserve cash I can use if I feel like there's a screaming deal out there, but I've got a lot of other things on my plate right now, besides the need to try to analyze individual stocks for purchase.
Note: Most Financial Advice is Useless Right Now
Let's be real. Most financial advice is useless when you're in the middle of a shitstorm like this. It's nice to be like, “Have an emergency fund!” Well, you can't build one right now.
For the most part, anything I can tell you to do is based on the assumption that you've been able to invest during the previous five years and that you've already got an emergency fund. Like, I don't need to stockpile supplies because I've had the financial resources to slowly build my preparedness and maintain that level of preparedness. I'm not worried about the stock market because I've been investing in it for more than a decade. My income isn't dependent on me going anywhere.
For many people, this whole COVID-19 episode is either a learning experience or a terrible confirmation of suspicions about our systemic shortcomings. (Or both.)
Some people are learning that they aren't adequately prepared for emergencies like this. As a result, they'll power through this, learn something new, and then use their available resources to get on track to be ready for next time.
Unfortunately, there are also those who know they're woefully unprepared — but there's not a lot they can do about it. Our safety net and healthcare system are inadequate for this challenge, especially for the most vulnerable. Unless we address some of the systemic problems, not much will change when/if this happens again.
So What Am I DOING Right Now, With COVID-19?
Well, mostly I'm just recognizing what I can and can't control. I'm washing my hands and doing what I can to leave the necessary supplies for those who need them. Rather than holding a kickoff rally for my campaign, I'm just going to write a press release and probably do some sort of social media event. Keep things low-key.
Idaho has very few cases (but that could be due to lack of testing), so I'm not completely curbing all of my regular activities, but at the same time, I don't actually leave the house all that much. I work from home. Most of my evenings are spent at home. There's really not a whole lot for me to change. I've committed to a gala that is still taking place the day I write this, so I'll go to that. My son's school hasn't been canceled, but it's a non-traditional magnet school and he's home most of the day anyway.
Travel is the only thing I really need to curb at this point, and I'm evaluating the situation.
Mostly, though, I hope that the fact that I'm in a position to be prepared without having to change much about my life makes me useful to others. I won't be taking away from those who need it, I'll try to not spread the virus (since if I'm a carrier, I probably won't know, due to my healthy immune system) and if any friends or family need assistance, I'll be able to give it.