Emergency Funds, Long Term Plans, and FAQs
Market impacts aside, we understand that each of you has been impacted by the COVID-19 crisis in different ways. For some of you, the current situation may be nothing more than an inconvenience – a change of routine, a cancelled trip, but not much more. Others, however, have seen their primary source of income at risk due to businesses being forced to shut down.
Over the years, we have discussed the importance of having an emergency fund. While we never really contemplated a situation quite like this, this is exactly why an emergency fund is so important. If your situation is such that you think you might need to supplement your emergency fund, let us know, and we can discuss the options available to you.
Over the course of the next couple weeks, we should get more clarity about the government’s response, how long we can expect to see activities curtailed, etc. As we do get additional clarity, we want you to know that we are here to help answer questions or to revisit your financial plan. While your financial plan does contemplate bear markets, we realize that there may be impacts from the current situation that were not envisioned (i.e., the loss of a business or job) and need to be accounted for.
Since many of you have similar questions, here are a few questions we have received multiple times along with a general response:
1. I am nervous, should I sell everything?
When we created your portfolio, we put together a portfolio that would provide a high probability of achieving your goals based on the risk you were willing to take. That portfolio envisioned times like this. When we talk about the long-term return of stocks, you have to remember that it includes the Great Depression, Black Monday, the Dotcom bust, etc. There were great years and there were awful years. Combined, they resulted in the average. If we make changes, it may impact your ability to achieve your goals. However, if you can’t sleep at night, we can explore how changing your portfolio will impact things (i.e., when you retire, how much you can spend during retirement, etc.).
2. I have more money to invest. It seems like a good time – should I invest it all now
If you have additional funds to invest, returns going forward look much more favorable than they did just a few weeks ago. With new money, averaging in over a period of time could be a prudent approach. If the market continues dropping, you’ll buy in at better prices. If the market rises, at least you bought in at cheaper prices initially.
3. I am done with the market. Other than going to cash, do I have any options?
Depending on your situation, there are insurance-based options that might be appropriate. If you need growth, they can provide for growth that is linked to the market but can be shielded from losses. If you need income, they can provide a pension-like income stream that you cannot outlive. This can be an interesting option for people who are scared of traditional investing or simply want an option to consider in addition to traditional investments.
Again, we are here and working to stay on top of this rapidly evolving situation. Please do not hesitate to call if there is something we can do to help.