Back in January, things felt so certain. Maybe you were expecting a promotion, maxing out your 401(k) and not worrying about making the rent or losing your job. You definitely weren’t thinking about job-related government financial-aid programs—PPP, PUA, the CARES Act or any other acronym—because they didn’t exist. Things have changed considerably for many Americans.
If the coronavirus crisis has taught us anything, it’s that we can’t take anything for granted. And that is a wise idiom to keep in mind as the U.S. economy reopens in fits and starts. Things might remain unpredictable until a vaccine or other medical treatments arrive.
Here are a few things to think about as you navigate your financial journey through these uncertain times.
1
Be Prepared for Continuing Volatility
In 2017, the U.S. economy grew steadily, unemployment fell similarly and the U.S. stock market had its quietest year since 1964. In 2020, however, the economy, the size of the labor force and stock prices have all whipsawed.
Accept the new reality, because volatility will probably be with us for a good, long while, says John Burke, a certified financial planner and founder of Burke Financial Strategies in Iselin, NJ. “There’s more uncertainty right now than there probably has ever been,” he says. “We’re not going to move back to a full economy until the virus is gone.”
2
Keep the Possibility of a Second Wave in Mind
This fall could bring on more market turmoil, depending on how the pandemic progresses. Given the heightened level of uncertainty, and with the job market looking like it will be tenuous coming out of the recession, it’s important to have investments you can count on, Burke says. So it’s probably wise to increase the amount of cash you have on hand, just in case.
Consider selling the stocks you own that don’t pay a dividend, or ones that do but whose dividend might be unreliable in the current economic climate. Don’t think of it as an admission of defeat, Burke says. “If you sell now, you didn’t sell low. You didn’t sell high either, but you are much closer to the high side right now, so it makes sense to do so,” just in case the future gets darker.
Keep your cash in a liquid account where you can also earn interest, so that you are still building your savings without opening yourself to market risks.
3
Stocks Are Still in the Royal Family
There’s no way to tell at this point, but with the first wave of the virus ongoing, and perhaps more waves (and layoffs and furloughs) to follow, Burke likes two destinations for that cash: dividend-paying stocks and an emergency fund.
As investments go, “there really is no other place to put your money” than the stock market, Burke says. He breaks down three alternatives:
● Government bonds, generally held to be the safest of investments, aren’t paying any kind of significant interest and probably won’t in the foreseeable future, he says. That means you’d have to add a generous amount of risk to your fixed income portfolio to get any meaningful return, which may not be a great idea right now.
● Residential real estate in certain markets is attracting a lot of attention, but commercial space is dangling off a precipice and not likely to improve until the economy gets better for good, he says.
● Gold, a traditional safe haven, still suffers by comparison to other asset classes in terms of performance.
With no investments recession-proof, Burke says to focus on a diversified portfolio of dividend-paying stocks or mutual funds. “Try to get north of a 3% dividend return.” Just keep in mind that stocks have risk, and if you have no experience investing in stocks themselves, it might behoove you to seek professional help.
4
Keep Your Emergency Savings Intact
It bears repeating: If you don’t already have an emergency fund, create one. There is no better way to keep yourself protected as we face unprecedented markets.
Burke says people should keep some perspective when building their emergency funds, taking into account any pensions or other solid income sources, as well as relative job security. Many experts recommend having enough cash for three to six months of expenses on hand, and Burke says that an amount equal to a year of expenses could be helpful. If it means selling stocks or refinancing a house to get there, he says, consider doing just that.
5
Businesses May Need Additional Support
As businesses reopen, they will be retrofitting their products, services and offerings to compete in a changed and challenging marketplace. But many businesses, especially small businesses, could be facing debt or bills that they can no longer pay.
It’s almost impossible to contemplate how hurt the U.S. economy would be if the federal government had not stepped in with its multitrillion-dollar stimulus efforts. Depending on how the crisis progresses, more stimulus money—or changes to rent, mortgage and/or tax laws—may also be needed.
If more aid isn’t forthcoming, it’s possible that even more small businesses in particular will run out of prior funding and be forced to close. Jobs will be lost (for the first or second time), and the economic recovery could be derailed.
Not All Doom and Gloom
At the moment, it may be hard to envision the U.S. and global economies returning fully to where they were before the coronavirus arrived. But given the huge effort being put toward discovering a medical treatment, there’s cause for optimism, Burke says.
Andy Sobel is a freelance writer and editor. He has held senior editing positions in The Wall Street Journal’s New York and Brussels newsrooms and was managing editor of American Banker. A graduate of the University of Missouri and Union College, he now lives in Nashville, TN.
Learn how you can stick to your savings goal in these hard times.