Stores are closed, economies are on hold, and no one wants to hear about cutbacks at work or in household budgets. These are probably the most trying times we will see outside of war. And under these extreme conditions, there is nothing wrong with running your household like you would a business. So, with you as the new Chief Financial Officer of your domain, where are you today?
Yours Is an Upside Down, Topsy-Turvy World Too
If you are working from home all day, spending time with your family while earning a paycheck, you have much to be thankful for. Your presence likely brings comfort to your spouse and to your children. What the kids see and hear during the COVID-19 pandemic scares them: people wearing masks, stores, schools and playgrounds closed, empty streets, Mom and Dad not “going to work,” sheltering in place. Their routines are disrupted. If they were older, life without the mall would be unfathomable.
Like most two-income families working at home, you’ve had to make adjustments too. Your “office” is somewhere in the house, unsheltered from the pitter-patter of little feet, and somewhat distanced from your spouse’s “office.” You might have daily or weekly tele-meetings with associates. Veteran “Zoomers” say it is not really a Zoom meeting unless the kids make an impromptu appearance during these video chats. And that’s okay.
You – We – Will Get Through It
While sheltering in place, you’re likely spending less by not going out to eat, but maybe more when stocking up at the grocery store. You’re likely spending less on gas, but maybe more on utilities due to prolonged consumption. You’re likely spending less on haircuts and coffee runs, but maybe more on home entertainment or adult beverages.
You are fortunate if you have uninterrupted income for your car and mortgage payments. Even so, it’s a good idea to cut your budget by 30 percent, if you can, and deposit excess cash in your emergency fund in case there is an interruption. Conversely, if you have been furloughed, or worse, don’t panic; prioritize. Know your emergency fund balance and how long it will last. Check your savings and checking balances to know how long your money can last.
If your spouse earns a paycheck, spend conservatively. Contact your lenders to let them know your situation. This is vitally important. They will (or should) work with you regarding payments. Your student loan paybacks are deferred without penalty or interest until the end of September. Your family’s essentials are your priority. Obviously, if you are convinced there is no hope of getting your job back, sign up for unemployment benefits – but also, despite the shelter in place order, know that local employers ARE hiring.
If you need cash, selling stocks during a market downturn is not a good strategy. Stocks are wobbly right now and you wouldn’t earn what you deserved even if you did sell now.
Thanks to Congress, withdrawing money from your IRA or 401(k) of up to $100,000 before age 59½ is without a 10 percent penalty. You will pay tax on withdrawals over three years instead of the year you take it. But is it absolutely necessary? You must think of the future.
Your Roth IRA or Roth 401(k) allows you to withdraw money without tax or penalty. However, you might owe taxes on the withdrawal amount. The best thing to do is to talk with your Hefren-Tillotson advisor about cash needs before doing anything.
This Time Is Different … Isn’t It?
Everyone has been affected in some way. The pandemic wiped away all of the jobs created since the Great Recession. Survival and recovery are key words here. The market detests uncertainty, and the sheer panic that escorted the coronavirus pandemic caused the market to tumble as investors hightailed it away from stocks. With luck, the fallout from volatility, risk and uncertainty won’t last much longer and the market will heal itself.
In the meantime, emotions run high and play an important role in people’s investment decisions under such duress. Even under normal conditions, people will buy certain investments out of fear and greed – “diseases that affect investors” – according to Warren Buffett. “We never try to anticipate the arrival or departure of either disease,” Buffett said. “Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
When thinking long term, emotions should have no role in sensible diversification and investment principles. Typically, “greedy” investments are purchased when their value rises and “other people” are making money (while you are not), which is a symptom of FOMO, the Fear of Missing Out. Investments are then sold out of fear, prematurely, after suffering a loss of principal. It might be human nature not to wait for its value to return or even surpass itself, but it’s not usually indicative of a successful long-term strategy.
Your Hefren-Tillotson advisor or planner knows that investment decisions should be made from a sound planning approach, developed in collaboration with you, and based on your overall financial situation, risk tolerance, time horizon and goals. There will always be bumps in the road. We are here to help you navigate through these tough times and pray that the virus does not return in the fall and winter, or ever again.