Something that I have learned in 24 years as a financial planner is that there is little, if any, “universal” advice. It’s risky to assume that just because you read it in the newspaper or a blog post (like this one) that you should rush out and act on the advice given. Pay down debt, spend less than you make, take advantage of tax shelters and diversify your investments sound like things that we should all be doing – but these are admittedly vague, and there are situations in which ignoring these principles is in fact the right thing to do.
With that backdrop I will attempt to answer a very common question at this time – what should I be doing right now? “Right now” of course is during a pandemic, in which we have seen the stock market move violently down and then inexplicably climb back to new heights, and in which almost every aspect of our lives has been altered in some way. The path ahead has never been more unclear and that makes a lot of us nervous. So, what do we do?
Here are five things to think about, and perhaps some advice to follow. At the very least, these will provide some context for a constructive conversation with your advisor.
- Adjust your financial plan. A financial plan has two key ingredients: an accurate picture of your current financial situation, and a roadmap to get you where you want to go. For most of us, things have changed. For some, that change is profound. Both your current situation (income, net worth etc.) and your plans for the future, are probably different. Perhaps you no longer dream of a winter place in Florida and instead would like a summer place in Ontario. Maybe your ability to save has shifted, or your confidence in the assumed rate of return has weakened. Change whatever needs to change to make the plan do its job – help you take the next step towards the life you imagine.
- Prepare for the next market meltdown. This is NOT a prediction that said meltdown is imminent. One thing that has been reinforced in the past six months is that market moves in either direction can be fast, and big, and most importantly, we will not be able to predict them. There is another market meltdown in your future, we just don’t know when. If the anxiety you experienced in late March of this year was at the edge of what you can manage, it may be worth making changes to your investment portfolio to reduce risk and put you on more solid footing when that next meltdown comes. And if COVID 19 caused a serious disruption in your cash flow and forced you to make financial decisions that were uncomfortable, like taking on more debt, or dipping into your retirement savings, then now is the time to start thinking about building a better safety net. For many, an emergency fund should no longer be access to a line of credit.
- Maintain a diversified portfolio. Two things may have caused your portfolio to suddenly lose some of its diversification. 1) The stock market rally has seen a few sectors dominate, and 2) we have fallen in love with those sectors, perhaps even a few stocks. In 1999 I spent an inordinate amount of time talking clients down from the idea of investing only in tech stocks. If you were a tech investor during that time that’s all I need to say. If not, let’s just say things didn’t go well for those who believed that the world was different. Predicting the future isn’t possible. Diversification still matters.
- Support your local businesses. The best way for us to collectively grind to a halt would be for all of us to simply stop spending and save 100% of our money. I’m not suggesting that you go on a spending spree, but think for a moment when you are spending your money and look for ways that you can help the little shop down the street. The big on-line retailers are doing well. The local shop with little or no on-line presence is in trouble. COVID 19 has tightened the boundaries of our community in ways unimaginable. Within the confines of that community is where you can do the most good. If you already shop in your community, make the extra effort to help that retailer who faithfully supported the sports teams and charity fundraisers for the past many years. If you haven’t visited some of the local shops put on a mask and venture in – you may be surprised.
- Revisit your risk management plan. A surprising number of clients wanted to talk about their wills as the pandemic washed over us in the early part of this year. COVID 19 is a harsh reminder that we are mortal, and that bad things happen over which we have almost no control. When it comes to updating our financial plan, it is much more fun to talk about our dreams and aspirations than it is to talk about what could go wrong. But things do go wrong. Take some time now to revisit your life insurance, your estate plan, your disability insurance and make sure that you are comfortable with the risks that remain. If not, make some changes. And when that is sorted out be sure to return your attention to the realization of your life goals and move towards them, with renewed confidence.