Managing Your Money In The Time Of Covid-19

Posted on: 30/03/2020

Raffi Pailagian
MBA, BSc, DipFP
Financial Planner / Managing Partner

Categories: Financial Planning & Advice Investing Wealth Management

Managing Your Money During Covid-19

The whole world is in disarray right now, many people will be feeling incredibly vulnerable professionally, financially, and perhaps most importantly, physically. But how should you be managing your money during Covid-19, is there anything you can do and not do that will help protect you financially, maybe even improve your position if you are careful.

A little About The Virus

There is information and misinformation everywhere. And it changes by the hour. But here are a couple of facts about the virus that might help put things in perspective:

Covid 19 has a lower fatality rate than Ebola or the Spanish Flu of 1918, but higher than normal flu
It has twice the infection rate of normal flu
Up to 20% of cases are severe/critical
The idea that only the elderly are at risk is wrong, depending on the location 24-52% of cases are in the 20-49 age bracket
The rate of fatalities varies by country from .9% in South Korea to 6.8% in Italy

With over 140 countries having reported cases, this virus is not something to be trifled with. In Australia we are lucky so far compared to countries like Italy and the USA, but the only way to stay that way is genuine social distancing.

What Not To Do

Don’t catch a falling knife. This is never more true than in a falling market. It’s natural to panic when you see stock markets around the world crashing, people losing jobs and companies closing their doors. But if you sell in a falling market you are essentially catching that falling knife. Investing in the stock market is a long-term strategy, so try and hold your nerve, stick to your plan and wait it out. The market will eventually rise again, and you will only have lost money if you sold.

These storms can, and will, be weathered. Of course, there may be situations where this is not practical, viable or advisable. But a qualified Financial Planner can help you understand when this is and how to navigate those difficult situations. The important thing is to take considered, experienced advice and not to panic.

A Little Stock Market History

Sharp falls and rises are all part of the stock market game. In the last century we have seen dozens of sharp drops, the Great Crash of 1929, the crash of 1987, 9/11, the Dot Com Bubble, the GFC and many others. But the overall trend of the stock market has been upwards.

Since its formation in 1987 the ASX has moved from just over 2000 points, to an all time high of over 7000 points in February this year. So, in fact, we are coming off a very big high, and at the current level of just over 5000 points we are still over 1000 points up on prices before they bottomed in the 2007/8 Crash[i]. In fact, if you invested $1 in cash in 1900 you would now have $242. But if you had invested in shares you would have $481,910.[ii] So you can see the growth potential of shares over time, and that is what you need to ‘bear’ in mind in this Bear market.

What You Can Do

There are a number of things you can do in the current economic environment to try and mitigate any losses an protect your position.

Look at your outgoings. Are there any areas where you can tighten up in your spending. Depending on the spread of the virus, McKinsey & Company expect it to be late 2020, early 2021 before recover begins.[iii] But we really don’t know how long recovery will take, so it’s a good idea to be cautious.
Take some time to really look at your Risk Profile. It is easy to feel you are a high risk high return investor when the market is looking good. But there is nothing like a crash to make you reassess your position. You might not be able to do anything about it right now, but when things return to normal, you might want to adjust your investment strategy.
Review your debt position. If you have multiple debts, or high interest loans this might be the time to try and consolidate and reduce your interest load.
Use the time you save on commuting to make a savings plan. It is always a good idea to have 3-6 months worth of expenses in cash just in case the worst should happen. If you don’t, now is the time to make a plan. It might not help now, but will give you peace of mind the next time we hit troubled waters.
Protect yourself. Look at the insurance you have and evaluate whether it is sufficient, or if there is something missing. Do you have income insurance? Is your health cover enough to take care of you if you need it? Is your life insurance up to date.

If you focus on the things you can do, rather than those you can’t, not only will your financial position improve, but so will your mental and emotional health.

Opportunity Knocks

Financial Plans are all about building and protecting your wealth. When the markets are down it can be a good time to buy, rather than sell.

If you are in the financial position to do it, and are careful about the stocks you buy, this can be an opportunity to make great returns. But remember, stock market investing is about the long term, so buy and forget is the mantra you should follow. In 10 years or you could see fantastic returns.

If this is something you are interested in, make sure you get sound advice from an experienced, qualified Financial Planner. It is a sad reality that some companies will not make it through this, so you need to choose carefully.

One Final Word…

Whilst it is certainly true that we have not seen the like of this situation before, the world economy has weathered many storms, since the first recorded bubble and burst over tulip bulbs of all things in 1637. As Abraham Lincoln was fond of saying, “this too shall pass”. So try to stay positive, your mental health is just as important as your physical health.

If you would like some help from us in navigating these uncertain times, please give us a call, email or leave a message via selecting the below ‘Interested in knowing more?’ link. We can sit down with you in person or via any video link platform you prefer, review your situation, your goals and the current environment, to help you towards your financial goals.