Policy Brief: Seeking Peace in a Time of Economic Chaos

Joan McGuire

A wealth management expert offers tips on financially surviving the recession.  

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It’s difficult to find words for what we are all experiencing. It is overwhelming to look at the magnitude of what has happened in the short time frame since COVID-19 changed our lives.

0520 policylederNancyCongdon

COVID-19 is the catalyst that is sending our economy into a recession. In a typical recession, the stock market drops between 30% and 40%, then recovers within 12 to 24 months.

The Great Recession started its drop in the fall of 2007 and hit the bottom in February 2009. Stocks dropped approximately 50% in that time frame.

Notably, within 12 months of that low point, the stock market rapidly climbed to its previous high. If you did not stay in the market during the Great Recession, you likely missed one of the most epic bull markets we’ve ever experienced.

COVID-19 is wreaking havoc in U.S. employment. In March more than 15 million people filed unemployment claims.

The scale of these unemployment numbers is astounding. For perspective, during the Great Recession, the highest weekly unemployment claim number was 700,000. Fifteen million in one month is simply unheard of.

Since 80% of our economy is driven by consumer spending, we cannot know the scale of the recession that these numbers foreshadow.

What can you do?

Here are some ideas for financially surviving this recession. Think of them like a bridge, helping you over this pandemic.

Review what’s available to you in each of the federal stimulus bills — multiple bills are possible by May.

If retirement or sending a child to college are long-term goals, your investments should be for long-term growth. Ride this out. Put your blinders on and keep investing.

If you are actively investing in retirement plans at work and are many years away from retirement, put as much money in your plans as possible. Essentially, everything is on sale. Keep buying.

For people in need of extra cash due to COVID-19-related factors, there are expanded provisions allowing greater access to retirement plans and individual retirement accounts.

You can make withdrawals with potentially lower tax implications and/or obtain larger loans. Before pursuing this, please be certain you understand the long-term financial implications.

For people already retired and living off their assets, ideally they already have 12 months of living expenses in cash.

Can you lower your spending to help your cash reserve last longer? A key provision in the March stimulus bill allows you to forgo your required minimum distribution in 2020. Can you lower or eliminate your 2020 distribution?

If you have a mortgage or a home equity line of credit, review the possibility of refinancing. Rates are at all-time lows.

Stay invested. Recessions are normal. The economy will recover. We don’t know when, but we know it will. One of the greatest harms one can inflict on a portfolio is to sell holdings while they are down.

When we emerge from this crisis, perhaps we can all approach our investing in a different way, considering how it affects the world around us. Align your investments with your values.

An avenue to consider, if you’re not doing so already, is sustainable, responsible and impact (SRI) investing. Studies show that an SRI-focused portfolio is less volatile. SRI investing screens companies for their effect on the environment, social concerns and approach to corporate governance. Consider voting with your investment dollars and influencing our collective future.

To make it through uncertainty, look at your own values and use them as touchstones to guide you. If you are in the incredibly fortunate position of being financially secure in the midst of this chaos, find peace and joy by helping others, and probably not by watching your investments daily.

What’s done is done. Live today. Be mindful. Money is simply a means to an end. Money, applied in alignment with your values, is a way to tangibly demonstrate your care and concern for people and causes. Give to charity. Help a neighbor. What small businesses and restaurants do you enjoy?

Tip big when you pick up takeout. Patronize them now to help create their bridge to the future. You get the idea. We truly are all in this together.

Nancy Congdon is president and founder of Blue Water Wealth, a Portland registered investment advisor firm.

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