After enjoying an 11-year bull market, things sure have changed. The economy just had its worst quarter since 2008, contracting for the first time in six years. (1) Unemployment is over 20% and the U.S. has indefinitely suspended 26.5 million jobs so far this year. (2) Our country, and globe, is in a financial crisis. However, as they say, every cloud has a silver lining. This financial crisis may spell trouble in many ways, but it may also provide opportunities. Here are four strategies to help sustain your wealth during today’s financial crisis.
It may seem counterintuitive, but one of the best ways to build wealth during a financial crisis is to keep investing. If you have at least a 10-year time horizon, the best time to invest is while the stock market is down. That is because when stock prices are low, you can get more for your money and they have more upside potential.
How do you know when prices are low and about to go up or when they are going to keep plunging? You don’t. That’s why dollar cost averaging is a popular strategy. Instead of trying to time the market, just invest the same amount of money at regular intervals. When prices are down, you will naturally get more for your investment.
Revisit Your Planning Projections With Your Advisor
It can be scary to see the stock market drop when you’re at a time in life where you may need to access your investments. Many of our clients get nervous that the decline in markets and shaky economy may trigger changes to their lifetime outlook. In reality, we find that the outlook for most clients did not change as much as they had expected. Reviewing projections with an advisor can help reduce the stress that you feel today, and in some cases may even lead to slight changes to spending that will improve your outlook.
Lower Your Costs
As you can see, a financial crisis usually offers good investment opportunities for those in a position to take advantage of them. One way to grow or protect your wealth right now is to lower your costs. Every dollar saved is a dollar that can remain invested.
One quick way to save on costs is to cut your travel budget for the year. You likely won’t be able to do much traveling this year even if you want to. Also, consider reviewing your insurance coverage to see if you have duplicate or unnecessary coverage. Insurance needs change regularly and you could save money on premiums by updating your policies. Another way to lower costs is by refinancing debt. Interest rates are at record lows right now, and dropping even a half percentage point on a long-term loan can add up to significant savings.
Seek advice regarding how to maximize tax deductions and take advantage of other government programs, such as the coronavirus stimulus bill. Finally, ask for discounts. Many prices are negotiable and discounts are available if you are bold enough to ask for them. Talk to your credit card companies about lowering interest rates or contact your internet or cable TV provider. It’s amazing how much money you can save if you’re not too shy to ask.
Avoid Costly Mistakes
During difficult economic times it usually makes sense to stay adhered to your strategy.
We recognize that this is easier said than done. As an investor, it can be challenging to stay focused on a disciplined investment strategy during times when headlines are scary and markets move dramatically in response to the daily news. This is not helped by those who compete for your attention and benefit by stoking fear. Don’t let the news and rhetoric be distractions to your financial resolve.
Part of the advice we offer to help address uncertainty and downturns is to adhere to three key principles:
- Employ a disciplined investment strategy that is integrated with other elements of your (up to date) financial plan to help manage the impact of short term volatility and taxation.
- Manage investment risk through widely accepted practices, such as diversification, re-balancing, and investing according to when you need the money (not by acting on your gut instincts).
- Accept market downturns and corrections as part of investing. Have a distribution plan that doesn’t involve selling equities at the bottom, and allows equities to recover over time.
How We Can Help
We serve as a professional partner to help you navigate important financial choices that impact lives. We gain an intimate understanding of our clients, and apply specialized skills and resources to help identify opportunities and coach actions which are beneficial.
If you’re looking for an ongoing relationship with a professional who can help you with your financial affairs, call us at (207) 775-1151 or email us at firstname.lastname@example.org to set up a complimentary consultation. Even if you’re not ready to talk to us in person, you can still access our best financial insights and tips by signing up for our value-packed newsletter.
Michael Donahoe is the founder and principal of Harvest Asset Group, LLC, an independent, fee-only financial planning and investment management advisory firm in Portland, Maine. Michael enjoyed a successful corporate career in marketing and sales before transitioning to the financial planning profession, founding his firm in 2012, where he now leads the client services team and serves as the firm’s chief compliance officer. Michael earned his MBA degree from George Washington University and completed his educational requirements to earn the CFP® mark of distinction at the University of California, Berkeley. He is a Fee-Only and NAPFA registered financial advisor, a designation which followed the completion of rigorous continuing education requirements. Michael has lived in the Portland area since relocating from San Francisco in 1995 to be closer to family. He is active in community affairs and spends his non-working time enjoying the natural beauty of Maine.