Coronavirus and your money
The purpose of this article is not to discuss or opine on any medical issues associated with the virus. There are health professionals and Government instructions to deal with that.
But I will offer some thoughts on its impact on your money.
Even though you may be asked to work from home especially if online connectivity is plausible, then your income should hopefully not be affected. Your employer should be able to ride the storm and make sure you get paid your normal income.
However, if you are in on-site, labour-intensive work — outdoor painting, gardening, plumbing, driving, stacking shelves at grocery stores, medical offices etc, the picture could be different.
If you can’t get to your place of work either through your choice, your employer’s instruction or customers just don’t show up, the issue could be tricky. If you can’t perform your job and thus no revenue comes to your employer, the question rapidly becomes how long can your employer pay you?
We’ve always advocated having a “rainy day” fund for unexpected expenses. This could become a rainy day. Do you have your umbrella?
The obvious approach regarding expenses is simple. Slow down on essentials and stop buying luxuries. This will undoubtedly have an impact on our overall economy if you reduce your spending and that is unfortunate — but you can’t keep draining your personal resources. You could run out.
Using the credit card to fill the gap is not a good idea, especially if you are buying stuff you don’t need at the moment. Not wishing to upset the coffee shops, but you may want to get by on just one cup. No point in increasing your credit card balance, especially if your short-term income to pay it, may be in jeopardy.
Let’s now turn to the markets — the roller-coaster stock market in particular. Some folks call it volatility. I call it yikes!
Many of you will declare you are not in the stock market — because you don’t have “that kind of money”. Wrong. You are in the stock market, most likely. Your monthly pension contributions will be invested in mutual funds and while some, or all, of the mutual funds may be in relatively safe, secure investments, ie bonds, treasuries, etc, there may easily be a portion of your mutual funds directly invested in the stock market, that is equities.
If you are brave enough to check your pension fund balance you may be in for a shock. But chill. There is ample time for it to recover. You are a long way away from retirement, hopefully, and there have been market slumps — sometimes serious — before then recovery kicks in and while it may take time, it should get back to normal. So, close your eyes for a while.
If you do have an investment portfolio which is mainly in stocks (equities) and those stocks pay you a quarterly dividend then your dividend income should only be marginally affected — if at all. The vagaries of the stock market cause ups and down day in, day out, and sometimes the whiplash can be severe — however, if the underlying value of the companies — referred to as “the fundamentals” — you are invested in remain stable, then they will continue to pay the quarterly dividend.
Keep track of their financial reports especially in some industries such as airlines, cruise lines, hotels, etc — where people are holding back at the moment from using their services.
If you are in the bond market, then your interest income should be secure. Once again, if the fundamentals are stable and you’re not in what we used to call junk bonds, then the companies you are invested in will pay their regular quarterly/annual interest. Keep an eye on them overall, but don’t pay too close attention to the bond price. It may not move much if at all, but market swings may cause an overlap into the company’s bonds with some price impact.
Lastly and I hope you don’t have to think about this.
Be careful, very careful, to think ahead financially and while I referred above to the rainy-day fund — which can be used as necessary — it is critical that you don’t dip into your long-term savings. If you think you are getting close to that then please do a “deep-think” about cutting back on your expenses first.
Those funds are for your future and your retirement years. Yes, I know you’re only 35 and it’s a long way off — but stop and think. Those funds must be protected.
These current turbulent waters will settle down. It may take a bit of time, but we will reach calmer waters. For the time being do this:-
1. Be aware that this financial situation affects you. It is not just those with large bank balances. This is everyday stuff.
2. Read articles like this one and Martha Harris Myron’s excellent piece in Saturday’s Gazette at http://bit.ly/2wT5bMm
3. Listen to her Olderhood Radio podcast — for motivation — on “Starting a short-term savings plan cash cushion!” on The Royal Gazette website at https://tinyurl.com/sn4f2mx
Bill Storie is CEO of the Olderhood Group