The coronavirus pandemic is bad news. With stock markets plunging all over the world, a return of the bear market, movement restrictions, supermarkets running out of basic necessities and pessimism all over the media, it has increasingly become difficult to maintain a rosy outlook in this uncertain times.
So, what does the coronavirus mean for your finances?
Folks. While things look really tough right now, it’s not all doom and gloom.
The financial markets are presenting many investors with what could be a once-in-a-lifetime opportunity to buy stocks and ETFs on “sale.”
Coronavirus and Your Money
The economy is in a free fall and governments around the world are taking unprecedented steps to limit the damage.
On March 18, 2020, the Canadian government pledged a whopping $82 billion in direct aid to shore up the economy.
Here are some of the things you should be thinking about now and for the future as you think about your finances and investments:
1. Have an Emergency Fund
Financial experts advise that you should set aside enough cash to cover your day-to-day expenses for at least 3-6 months. It’s in precisely times like this that a cash hoard like this one comes in handy.
With shutdowns all over the place, you may need to stock up on staples and other necessities while you hunker down. Without extra cash to spend, it may mean opting to use your credit card and/or taking out a loan.
If you were caught off-guard and are having difficulties paying your bills or mortgage, reach out to the company (e.g. lender) and let them know about your situation. Various accommodations are currently in place to provide relief for some situations.
For dire situations, a low-interest credit card or no-fee cash back card may be helpful in financing your daily expenses for the short-term. However, take note of the interest fees and be careful about piling on debt.
The Canadian government will be making funds available to those who need it most in the coming days via EI and the Canada Child Benefit programs. More details are expected to be provided soon.
2. Don’t Sell in a Panic
Whatever you do, don’t go panic-selling all your stocks and ETFs while they are deep in the red…if you can stay afloat otherwise.
If it helps, stop looking at your portfolio i.e. practice “portfolio-distancing.” Remember that you haven’t actually taken any losses until you sell!
Historical market data over the last century tell us that the markets will eventually come roaring back – see chart below. If you join the sell-off, you could inflict lasting damage to your portfolio and retirement nest egg by buying ‘high’ and selling ‘low.’
The financial crisis of 2008-2009 was pretty bad (see red arrow below), however, it was closely followed by the longest bull market run in history.
The deep discounts we are seeing are also offering opportunities to ‘buy’ and ‘hold.’ While no one can reliably time the market, I am personally buying small amounts of ETFs and stocks as we go along so I can use dollar-cost averaging to my advantage.
Sinking money into stocks during a downturn is not for everyone. If you won’t need the money in the next 5-10-15 years, this is a great time to invest. Otherwise, stay put on the sidelines.
To quote the legendary investor, Warren Buffett:
I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
Related: The 10 Golden Rules of Investing
3. Develop a Long-Term Mentality
It may have sounded cliche when the likes of Peter Lynch talked about long-term investing as being the only way to succeed in the markets. However, current events bear witness to the importance of this investment philosophy.
Markets rise and wane. This is the nature of the beast. You should structure your portfolio to be resilient for the long-term and in line with your risk tolerance.
A balanced portfolio and adequate diversification have their place. Plan to always keep some cash available as a cushion during unforeseen events.
The fundamentals of many of the companies that make up the S&P/TSX 60 or the S&P 500 did not change overnight. Unemployment was low and corporate earnings were great.
However, the panic and herd mentality that has ensued over the coronavirus pandemic does not care about technicalities. Black Swan events don’t give advance notice, they just happen.
A long-term approach to your investments will help you weather the storm.
Long-term investing has gotten so popular, it’s easier to admit you’re a crack addict than to admit you’re a short-term investor. –Peter Lynch.
4. Find a Side-Gig
While the work-at-home trend and gig economy has been booming over the last decade, an economic downturn and its potential fallout make a strong case for finding a side gig.
Many side hustles can be done online from the comfort of your home. As your own boss, you set your schedule and earn additional income to supplement your 9 to 5.
One example of an online job is blogging and this six-step guide for starting a money-making blog is worth checking out. The idea is to diversify your income sources.
Looking for some ideas on ways to earn additional income in your spare time? Check out these posts:
5. Cut Your Expenses
No better time to tighten the purse strings.
Do away with non-essential spending and look for ways to reduce your spending since nobody knows how long we are in this for.
Here are some money-saving ideas to get you started:
- 100 savvy ways to save money
- 29 ways to save on everyday expenses
- 15 ways to save on your finance and investments
- 20 strategies for saving money around the house
6. Take Advantage of Low-Interest Rates
Unfortunately, savings rates are headed for the gutter. While you can still find some online banks like EQ Bank offering a decent 2% savings rate, rates are trending down as the Bank of Canada continues to intervene by cutting the benchmark interest rate.
The Big Banks may soon be back to essentially offering 0.00% (or something close) on your savings account.
While rates are low:
- It is cheaper to borrow. If you are looking to consolidate higher-interest credit card debt, this could be a great time to save money by using a low-interest personal loan to pay off your balance.
- Refinance your mortgage at a lower rate if it makes sense after factoring in any penalties arising from breaking your mortgage contract.
Shop around for the best savings rates available so you can at least earn some returns on your cash portfolio.
7. Maximize Your Rewards
Online shopping is going to increase. Get some cash back by using free cash back apps and a good cash back credit card.
Some of the cash back apps I’ve found to be worth the time include:
Caddle: Also great for grocery purchases. Read this Caddle review.
Some related reading:
8. Watch Out For Fraud
The unscrupulous ones among us do not take a break, even in times of crisis. Scammers have been trying to exploit people’s fears during the coronavirus pandemic.
Here are some steps to take in order to keep scammers at bay:
- Do not click on links in emails and texts from unknown sources.
- Get your updates from reliable government sources.
- Do not jump at offers to make a quick buck and generate high returns.
- Avoid fake news and products that promise to detect, treat or cure the coronavirus.
- Do not give anyone your SIN or credit card information unless you are confident they are legit.
- Be wary of charity scams.
- Watch out for deceptive adverts online.
Final Thoughts on Managing Your Finances During a Crisis
For those who are retired or close to retirement, the future may feel bleak right now when you see the decline in the value of your RRSP, TFSA and non-registered assets. My advice is: hang in there for the long haul and refrain from checking your investment account. You have seen this happen before circa 2008.
Young people who have access to discretionary cash are uniquely positioned to make a killing.
Feeling really nervous about the stock market drop? It may be a good time to revisit your asset allocation. You may have taken on too much risk.
If you are not sure about what to do, consider getting professional advice.
Overall, try to stay calm and be as rational as you can. Governments around the world are throwing the “kitchen sink” at this crisis, so, hopefully, all will be well soon.
PS: One interesting result of this pandemic and the severe market correction is that folks in the FIRE (financial independence, retire early) community get an opportunity to stress-test the assumptions they have used to model their retirement finances. For example, the 4% withdrawal rate and how these could hold up in a prolonged economic downturn.
Every once in a while, the market does something so stupid it takes your breath away. — Jim Cramer
You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets. — Peter Lynch
What is Coronavirus?
As per the World Health Organization:
Coronaviruses are a large family of viruses which may cause illness in animals or humans. In humans, several coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). The most recently discovered coronavirus causes coronavirus disease COVID-19.
COVID-19 was first identified in Wuhan, China, in December 2019.
Symptoms of COVID-19
The most common symptoms of COVID-19 are fever, dry cough and shortness of breath. Other symptoms you may observe include sore throat, runny nose, and body aches and pains.
Older individuals and those with existing disease conditions are more susceptible to contracting the severe form of the disease due to their immuno-compromised condition.
Resources in Canada for the Coronavirus
The coronavirus is spread through contact with respiratory droplets from the nose or mouth of someone who has the virus.
You can protect yourself by maintaining good hygiene (wash your hands regularly!) and avoiding close contact with sick people. If you have travelled abroad recently, avoid contact with others by self-quarantining for at least 14 days.
If you are showing warning signs for COVID-19, get medical attention immediately. At this time, diagnosis is only confirmed through laboratory tests.
Here are some of of the resources available across Canada right now for coronavirus updates and who to contact:
Provinces and Territories in Canada
- British Columbia
- New Brunswick
- Newfoundland and Labrador
- Northwest Territories
- Nova Scotia
- Prince Edward Island
How are you managing your finances right now? Any concerns? Plans for the present and future? Tell us about them in the comments!