I’ve had a few emails from people asking me what I am doing with my money during this time. So how have the last few weeks affected me and what am I doing about it?
How has coronavirus impacted me financially?
My funds have dropped in value by six figures
This is a very significant amount of money, yet I am as calm now as I was before the drop in value. How can that be? Because I have an investment plan that is relevant for my goals, risk tolerance and investment timeframe. In other words, this is money that is not going to be needed for over 20 years. I am extremely confident in the ability of companies to continue to add value over the long term.
By not selling I haven’t lost that money in a real sense. I am confident the markets will rebound over the long term and soar even higher than previous highs.
If you have a long timeframe consider these great buying opportunities. Who cares about short term returns for long term goals. If you are needing the money soon, what are you doing in shares?
I am extremely concerned about my job
I’m not going to lie; it is causing sleepless nights. My full-time job as an Operations Manager is starting to come under threat. Business has dropped off significantly. One saving grace is I work for a large multi-national company, and cash reserves are higher than smaller businesses. But it’s only a matter of days before big decisions will start being made. Whether that is job cuts, reduction in hours, reduction in pay, forced leave, or something else I don’t know.
The coronavirus is only starting to gather steam in New Zealand now. I would hazard a guess we will have at least another couple of months of isolation standards. Business will suffer big time and labour costs are generally the first to be reduced.
What am I doing about Cornoavirus?
Investing
I’ve upped my monthly contributions by 5% per month by cutting down our spending by 5%. By continuing to buy every month I will take advantage of these lower prices. Even if they continue to drop, by investing every month I get to take advantage of all price points. On top of that I typically rebalance my portfolio every 6 months. If stocks are doing well, I buy more conservative assets. If conservative assets are doing well, I buy more stocks. This ensures I don’t end up with too little or too much risk.
The problem I am seeing with many people is that they had no investment plan or the wrong plan. Many people who need money in less than 5 years are now panicking. Some are selling, locking in the losses. Others are hanging on for dear life hoping to see a rebound before they need the money. They should never had so much in growth assets in the first place. They were either naïve and didn’t know how markets work or they got greedy during the good times. I would say it has been a bit of both.
By not investing too aggressively for my circumstances I am surprisingly OK about the current state of affairs despite seeing a drop in value the equivalent of 2 years of income. This is my first experience as an investor of a sharp drop, and I am happy with how I am responding.
In other words, I am not doing much, but the basics. Investing every month (albeit slightly more than normal), rebalancing every 6 months, remaining diversified in a wide range of companies and geographies, and not selling. This is thanks to planning during calmer times. Now is not the time to be making an investment plan. You will make irrational, emotional decisions. An investment plan should be made during less volatile moments.
Another good idea may be to not check your balance. I only checked as I had some adjustments to make for the family trust.
If you want to take the emotion out of things, then a good financial adviser can still help with a plan moving forward.
A few months ago, I wrote an article about an upcoming recession, and in that article I wrote about the importance of being good at your job. A lot of people in these times of low unemployment tend to cruise through the days knowing their job is pretty safe, and they could easily find alternative work. Well now the tables have turned. Unemployment will be rising, and alternative work will be extremely difficult to find.
The cruising employees will now be the first to be given the heave ho. I may also be given the punt, but by working harder than most in the office over the last 5 years I have left myself in a better position than others. I have added value in ways that no one else has. In these times, you need to be better than your coworkers. They are the competition. If you are better, you should push yourself further back in the termination line. If it comes down to me being asked to leave, I might even resort to asking to stay but at a much lower rate.
Emergency fund
We have a substantial emergency fund. Enough to last us at least a year. This makes us grateful for the hard work we have done in the past to build this up. It has been somewhat annoying watching the markets climb in the past and not having this put to better use, but now our decisions seem somewhat justified. Knowing we will be fine for at least a year without a job or needing to tap into our investments, we feel some comfort.
If your emergency fund is in an offset mortgage account, it might be worthwhile considering getting it out in this climate. The banks can easily remove your ability to withdraw that money if they want. I wrote more about that here.
Multiple sources of income
We have our jobs (currently anyway), my financial advice business, dividends, and interest. Sure, less than some people, but knowing that I still have my business if I lose my full-time job is some consolation, and definitely better than having no back up. Maybe you can offset this by having adequate insurance cover. We have less insurance thanks to our emergency fund, savings, and back up jobs.
Reducing expenses
We are being a bit more careful with our spending over the last few weeks. Lower monthly expenses will allow us to last longer without jobs should it come to that.
Final thoughts
To be fair we are not doing much at all. All our preparation was done BEFORE the downturn. After all, downturns in the economy are to be expected. Apart from investing a bit more and reducing our expenses slightly we are not doing much different at all. That is the importance of being prepared. Downturns in the economy are inevitable. If we don’t plan for them, then we will end up in terrible situations of not having enough income to cover our expenses or being forced to sell our homes.
Over the last few years:
We spent years building up a large emergency fund.
We invested slightly less in growth assets to match our situation, instead of trying to buy more to take advantage of the booming economy.
We’ve been adding value to our employers beyond our job descriptions.
It’s a shame that so many people have got too greedy and overconfident during the good times, and now they will feel the impact during these times. Their emergency funds are too small, they are invested too aggressively, are complacent, and are now exposed.
The best financial plans are able to withstand good and bad times. Many people change their plans depending on the state of the economy and that is not the way to go. Too aggressive in good times and too conservative in bad times. You will then be caught out when good times turn bad, and caught short when bad times turn good.
Now is not really the time to start planning for a recession. It is too late. Hopefully if you are one who has been caught out, then just take this as a costly lesson. Learn from it. Hopefully you won’t go too far in the opposite direction and become too conservative though.
I sometimes feel at odds writing about financial freedom at such times when many people are struggling to keep their head above water. The last thing many people are thinking about is financial freedom at the moment. Many are just trying to survive. However, my thinking is that this situation is bad enough without considering finances. Add in troubling financials and it makes this time that much even harder. So in my opinion, smart financial decisions and financial freedom is more important now than ever. I will be upset for sure at losing my job, but it won’t break me and I have the last 6 years of preparation to thank for that. All I want is to pass on the same message to others so that we can all have one less thing to worry about. So I am going to continue to write about financial freedom throughout these challenging times and I will make no apology for that.
I apologise if this article sounds a bit “I told you so”. It is by no means my intention. There are many families going through much tougher times than I and we should be sympathetic. Now more than ever. We have one common enemy - the coronavirus. We need to work together and support one another. Through all this though, my hope is that people have learned how to be better at risk management. That is all I am trying to convey. Don’t get too greedy in good times, nor too fearful in bad times. In terms of economic cycles this is relatively normal. In terms of our health, this is far from normal. Take care of your health first and foremost. These are scary times and I am disappointed some companies are putting money ahead of public safety.
And please don’t buy too much food. There are other people in this country that need food too. Is it too much to want my vegemite sandwich this week?
The information contained on this site is the opinion of the individual author(s) based on their personal opinions, observation, research, and years of experience. The information offered by this website is general education only and is not meant to be taken as individualised financial advice, legal advice, tax advice, or any other kind of advice. You can read more of my disclaimer here