The 2020 stock market crash that began in February this year has already seen the worst trading weeks since the 2008 financial crisis. If you have money tied up in the stock market, you already know that the bears* are in control. And predictions of a recession seem more and more likely to come to fruition. *Note: there are two market trends: bull and bear. A bull market is a market that is on the rise and where the economy is sound; while a bear market exists in an economy that is receding, and stocks are down. Let’s discuss some finance tips during the Coronavirus.
But what is a wise course of action in these times of uncertainty and financial distress? Here are finance tips to consider when you’re planning your next steps in the wake of the coronavirus (COVID-19) pandemic.
Take stock of market behavior during past crises
Stock markets have reacted sharply to disease outbreaks in the past, first falling and then recovering six months following the first reports of the crisis.
As an example, S&P 500 gained nearly 14.6% after the first occurrence of another coronavirus – SARS – in early 2003. Markets have bounced back after Ebola, swine flu, dengue fever and Zika outbreaks, as this chart from MarketWatch shows.
Nobody can predict the stock markets, but historical trends can help inform our decisions. And going by past behaviors of commonly followed US market indexes, we can hope for a recovery in the not too distant future.
- Rather than panic and sell, use this opportunity to add to your portfolio. Do it only if you have disposable cash i.e. money you don’t need to pay the bills or allocate to an emergency fund. If not, hold tight and ride out the bear
- Buying and holding assets for the long-term insulates you from stock market ebbs and flows. You won’t be able to make the most of surges and large falls won’t put you on the edge. Long-term, value investing can be a safe route, and a financially savvy one if you hold dividend-paying stocks.
- Buying when the markets are high and selling when they’re low for near-term profits is risky. No one can time the markets perfectly; most professionals do marginally better than amateurs. Buying and holding for the long-term is preferable: time in the market outplays timing in the market.
We recommend that you talk to a financial advisor before making any investment changes.
Manage your debt, rent and utility payments
Many credit card companies have programs that provide customers financial hardship assistance during disasters such as pandemics. Utility companies are sympathetic too, as are some landlords.
Apple Card, Bank of America (BofA) and Barclays are allowing some customers to skip their March payments, as are CenterPoint Energy, Xcel Energy and Minnesota Power. BofA customers affected by the pandemic can also defer their mortgage payments. Credit card issues have waived late fees, offered credit line increases, and assured no negative credit bureau reporting.
Call your credit card issuer and request for more time, a lower annual percentage rate (APR) on your card, or an interest waiver. Also make similar requests to your utility companies, regardless of whether or not you’re in good standing with them.
Try to pause most of your debts if you’ve been notified of a salary cut, your partner has lost his/her job, or if freelance work has dried up. Now is the time to spend only on the essentials and ensure that you don’t have to keep going back to your emergency fund.
You could also try to work out a deal with your landlord, whether paying part of your rent or if possible, the full amount. If your landlord’s financial situation is perilous, then you must contend with a flat refusal. If not, you might get the break you need.
Budget for the short-term
The pandemic has seen people stock up on essentials for weeks of self-isolation. While buying a week or more of groceries is absolutely fine, avoid spending unnecessarily on canned food, toilet paper and paper products to last you six months.
Financial discipline will keep expenses in check and offer the flexibility to pay for priority items or pay off non-negotiable bills/loans. Here are some ideas:
- Cancel the automatic memberships and subscriptions you don’t really need during this time. For example, a gym membership. And the sooner the better, before money gets deducted from your account.
- As the kids are cooped up indoors, it doesn’t make financial sense to continue paying for their dance, basketball or piano classes. Kids’ activities are one area where you can cut down on monthly expenses.
- A halt on unnecessary food delivery and shopping online are other sacrifices that reduce your spending.
It’s better to track your monthly expenses and budget for everything carefully. Especially, with the uncertainty around how long the lockdown may continue and how things might be for a while after normalcy is restored.
Boost your emergency savings account
The point of an emergency fund is to assist you through times of financial hardship and provide finance tips. So, it’s okay to use some of the money you’ve saved up for necessary purchases. If you’re falling short of money to pay for essentials, that’s always an option.
As things get better, you can keep adding to your emergency savings account. Any money you can save after skipping loan payments or cancelling memberships should help replenish the emergency fund.
The idea is not only to have enough for a future event, but to also ensure that you can address unexpected events during the outbreak situation.
Emerge tougher after difficult times
Like every other crisis, this too shall pass. What’s important is you keep you and your family healthy and safe as well as doing what you can to prevent the coronavirus from spreading. You’re not alone in this and together we can bounce back.
For more information about how you can protect yourself and others from the coronavirus (COVID-19), please visit the CDC.
This article is for general educational purposes only and is not written by a financial advisor.
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