The activity in the stock market this week has been normal. Yup, you read that correctly. This is normal – uncommon for sure, but normal. Don’t get me wrong I am as concerned about Coronavirus and what is going on in the world as anyone. My kids are in elementary school and my parents are over 65. This places me squarely in the “sandwich generation” where our emotions (and money) are strained from all sorts of directions – all the time. I’d like to share some of the ways I am handling the Coronavirus personally when it comes to money. Hopefully this will provide some perspective for you no matter where you are on your financial journey.
The Stock Market
The stock market reacts to uncertainty. We can all agree there is enough of that to go around. The market has been reacting to this over the past few weeks with a few brief rallies mixed in. This week there were two stock market “halts” where there was no trading for 15 minutes. These act as a circuit breaker when the S&P 500 drops 7% during one trading day. Basically the stock market equivalent of sending your kid to time out when they completely lose their shit. After 15 minutes trading is back on. If it drops 13% before 3:25 PM EST another halt will occur for 15 minutes. If there is a 20% drop trading is done for the day.
A bear market is when the stock market drops 20% or more from it’s last high. The Dow closed at record highs on February 12, 2020 at 29,551.42 which is important. The Dow is an index that reflects 30 large public companies that trade on the NYSE and the NASDAQ. The Dow includes companies like Boeing, Exxon and Chevron – which have been severely impacted by the Coronavirus.
A bear market is not the same as a recession. A recession is two consecutive quarters of decline in GDP (gross domestic product). It could happen but it isn’t the same thing entirely. For perspective, a 20% decline from the last high brings us to the levels we were at around May 2017. Don’t get me wrong – seeing account values drop so much feels like a gut punch but I was working in 2017 and there was no major concern about the ability to retire or if investing made sense.
I’ve been beating the emergency fund drum for a long time (read more here: Why Everyone Needs an Emergency Fund). An emergency fund is money set aside to help cover unpredictable expenses. They keep you and your family safe and reduce the need to go into debt during a crisis. A healthy emergency fund can help you make decisions that aren’t based on fear or panic. Yes, a 2 week self quarantine is impossible for some people depending on their work. A police officer can’t just work from home, neither can our doctors and nurses. For some of us, it is possible to make their lives easier by staying put for awhile and money allows us to do that. It is a major inconvenience but not a “disaster”. If you worry about using your emergency fund – don’t. This is what it was made for. Go get the food and supplies you need for you and your relatives and work to build it back up once things turn up.
My whole life I heard reasons why we couldn’t save any money. If you are telling yourself the same thing your brain will come up with plenty of reasons to prove you right. This is important though – if you are prioritizing things you want over something like this that you need you will feel the impacts of a crisis FAST. I remember 1987 – it was around the time I stopped being kid that got everything I asked for.
The market changed then too and so did our entire lifestyle. Sometimes I wonder if we saved just a portion of what we made when things were really good how things would have ended up for us. This is a wake up call for everyone – saving money is a good habit for everyone. Don’t believe me, check out Ronald Read’s story if you have a minute if you haven’t heard about this savvy janitor from Vermont.
When is it time to panic?
My friend told me the other day that I calm her down when we talk about money. My mother has said the same thing since I was young. I’m ok being the human equivalent to xanax. Truthfully, I don’t think panicking ever helps unless you are running for your life. There is no need for fight or flight here – there is another option. Now is the time to think about the facts.
What is true for you right now? What was your plan 3 months ago? Were you planning to retire in 20 years and not touch this money until then? Good – don’t touch it now. Were you planning to look for ways to grow your business? This may help you think of ways to reach more people in a shifting work environment if more people do end up staying home. Did you want to finally get a will, a financial plan or your budget in order? Do it. What was smart when you were making your New Year’s resolutions is still smart today.
What I’ve done this week
Here are a few things that I’ve done this week to prepare for the impact of coronavirus. My shopping trip was heavier on the frozen food, soap and other household items we tend to go through in a week. I felt zero guilt about that even if we don’t end up needing to stay home for an extended period of time. It helped me feel more prepared and since I have an emergency fund for this purpose I didn’t need to think about what I needed to sacrifice to feel that comfort.
Also, I checked on my parents to make sure they had what they need and how they are feeling. My children know all about the coronavirus fron being in school. While they aren’t nervous at all, they have been talking to us about handwashing, proper coughing etiquette and looking out for others. I love teachers and can’t express the amazing impact they have in stressful times. I’m just over here trying keep them from plowing through all the self-quarantine snacks.
I also invested a bunch of money in the stock market. No, this isn’t a market timing move or expert decision on my part. After I changed jobs I needed to wait 6 weeks before I could move my 401k out of the plan. When six weeks rolled around I invested the money exactly like I planned to in January. Sure, I could have panicked and left it in cash for awhile but that wouldn’t have made sense for me. I plan to work a long time and the market is going to go up and down plenty during my career. The strategy we use at my firm was made for times like this. There is no panic selling, impulse buying or gut feelings involved. We have a plan for what to buy, when to sell and what to do with the proceeds. Since I trust the strategy the time for me to go in was no different than it would be if coronavirus didn’t strike.
How are you handling things differently? I hope all of you are healthy and can stay safe as we get through this crazy time. What are some of the best resources you have found for information? Please leave them in the comments!