The COVID-19 crisis has sparked anxiety worldwide, leaving people to feel overwhelmed by the uncertainty of the future. Not only is this a health crisis, but it is also an economic crisis and many people may have questions on how to protect assets and maintain or increase their cash position. There are a couple important things to remember in these seemingly dark and uncertain times: 1) This is not the first – and won’t be the last – time that the market dips; 2) This is a good time to get your financial & investment strategy in check; 3) You will get through this.
The main question that people might be having is: what should I do with my money? – The key points to think about are: go gradual and diversify when looking for money-making opportunities. You will want to start small and diversify across major asset classes such as equities, bonds, cash, and gold. You will also want to diversify in major regions and sectors of the market.
Four Key Financial Strategies
Lorna Tan, head of financial planning literacy at Singapore’s multinational bank DBS, suggests four key pieces of advice when entering the stock market
- Invest for the long-termà Money you invest should be for your long-term goals, so you will want to have 3-6 months’ salary saved in cash for the more short-term goals and priorities.
- Contribute graduallyà This is known as “dollar-cost averaging.” Invest on a fixed sum regularly in the same investment product. This will allow you to buy more units when they are at a lower cost.
- Take advantage of compound interest à “Time in the market is more important than timing in the market.” Make sure you stick to a disciplined investing plan.
- Diversify! à Consider low cost, passively managed index funds or exchange-traded funds.
Helpful Financial Advice Regarding Your Assets
Other helpful tips when thinking about how to manage your assets include:
- Unless you have an immediate need for cash, DO NOT sell your assets out of panic.
- Take a broader, big picture perspective of your financial well-being. You may look at your mortgage with current low interest rates and see if this is a good time to refinance and take advantage of those low interest rates.
- Main Point à Do NOT make financial decisions out of fear or panic.
Historical Analysis of Pandemics on the Market
Some notes on the stock market in general. Based on past health crises since 1980, the impacts on the stock market tend to be relatively short with the average drawdowns lasting less than 2 months. One exception to this average was in 1981 during the HIV/AIDs pandemic, which took about 5 months for the stock market to recover.
There is speculation that our country is heading into a recession amid this crisis, and experts are saying that at this point a recession is inevitable. Although this seems like daunting news, there is hope. Carey Business School Associate Professor Alessandro Rebucci has some thoughts regarding a possible recession:
An average recession lasts about four quarters and increases the unemployment rate by two to three percentage points. This one poses formidable challenges and could be longer and more severe, possibly worse than the Great Recession of 2008-09, which lasted six quarters and saw the unemployment rate reaching 10% of the labor force. Additionally, this will be a global recession, which will mean a deeper and longer recession, compared to the Great Recession of 2008. However, we will not be looking at as great of financial losses as seen in 2008. This is because, overall, the financial system is in much better shape, with only pockets of excess leverage and hidden vulnerabilities. There is no foreseeable systemic meltdown.
Some Industries Benefit During a Down Market
Some industries that might benefit from the crisis include: telecommunication and any business involved in facilitating social distancing, certain areas of the entertainment industry, utilities, health care, and real estate. Higher education will also see an increase interest in online education.
Many experts agree that the markets will recover over the next several months. China is a good example of the positive signs of recovery, with no new cases; the economy is seeing a positive shift in their market. Additionally, the US government has implemented, and is continuing to implement, proactive fiscal measures to support the economy.
Avoid Making Panic Based Financial Decisions
Again, the important things to remember: Don’t make big financial decisions based on panic or fear. Go gradual and diversify when looking for money-making opportunities. Take a broader perspective of your financial well-being.
Lastly, stay positive, we will get through this!
At Lake Harriet Law Office, we provide strong legal representation for our clients who are going through divorce and family law matters, and we use a data-focused financial approach to address the division of assets and debts. If you are concerned about divorce and the related financial issues, please contact us to schedule a consultation at 612-750-4843.
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