We will get through this crisis!

First, I want to apologize if my last post and title seemed insensitive or a bit flippant. Covid 19 is a very real Pandemic and many people will get sick and die. This a very serious situation. The Economy is being affected in ways we really don’t understand yet. These are scary times and everyone should be concerned about both their physical as well as financial will being. I have no doubt that as a nation we will pull through this but I am not going to sugar coat it. This early in the pandemic and economic crises it caused, if anyone that tells you how soon this will be over, or even how it will end they are simply lying. There is too much unknown at the moment. I urge everyone to follow the advice of the health care experts and keep themselves as safe as possible. As for your financial will being I will provide some guidance best as I can from time to time starting with this article. If you have a financial adviser talk to them, if you don’t but have a long term plan stick with it unless your other needs are urgent.

I usually start with the premise that most of my readers are investing in stocks, and have a plan which includes sufficient cash on hand to weather storms. My advice has always been not to have any money in the market you plan to use or are likely to need in the next five to ten years. For those people my advice remains the same, don’t panic. There are some steps you may want to take to modify your plan and I will address those in later post.

Right now I want to reach out to those of my readers or their friends and families that are economically the most vulnerable and don’t have investments or have investments but no plan.

First are we in a Recession? Will it turn into a Depression?  A recession is not typically declared until there are two consecutive quarters of economic decline as measured by gross domestic product and then after we have been in it for long enough the start date is declared retroactively to the start of the decline. That is very technical and usually how it unfolds, however almost every economist and more importantly most average people believe we are in a recession already. A depression is usually defined as an extreme recession that last three or more years. It is way too early to tell if this will turns into a depression. That will depend on a lot of factors including how long this last, and how the governments of the world handle both the pandemic and the economic fallout that it has caused. The rapid pace of shutting a large portion of our worldwide economy down and the number of people filing for unemployment has never been so quick. There is really nothing to compare this to, and very few lessons to learn from the past. We are breaking new ground. Usually slowdowns happen over time, and spread from region to region. Because of the nature of the pandemic this has happened at a pace never seen before, an affected the entire world at the same time.

No one knows how long it will last or can promise you a quick recovery. While I am optimistic we will get thought this together, anyone that tells you they know how soon the economy and markets will recover is not being honest. There is too much unknown at this point to put any time frames or predictions about the pace of economic recovery.  The economy is still falling and the cases of COVID 19 are still rising. Until we see a an actual plateau and then decline in cases predictions of timing are educated guesses at best, and misleading information at worst. Markets don’t like uncertainty or guesses, and they will remain volatile until there is a clearer picture.

My guess is the economy and the stock market will definitely get worse before they get better. There may be some wild swings along the way. I don’t know how much worse or how long until things will continue their downward trend before they start getting better. At the moment there are arguments to be made for a quick recovery once the pandemic is over, but here are also arguments the market and the economy could continue to fall and have a long slow recover even after the worst of the pandemic is over. You should be conservative and plan for a possible long economic down turn. You should not plan on things getting back to any sense of normalcy in a couple of weeks just because some politician is promising it or because that is when some of the current mandated closures are slated to end. Best case scenario I don’t see many of the people or businesses that have been told to no longer work resuming their jobs before May. The big question will be how many of those jobs will be left when they are able to go back to work.  Unfortunately, the longer this goes on the more ominous that question becomes.

So if you are one of the people out of work or with reduced income what should you do? Frist if you qualify, apply for unemployment. Take stock of what you have, how much savings do you have, how much you will receive from unemployment and/or severance. Do you have any other sources of income? Next cut out all non-essential spending and list all your essential bills. If you have a serious shortfall between savings, income and the essential bills look for additional sources of income. A lot of grocery stores are trying to hire quickly, and while maybe not your dream or ideal job, any extra source of income should be jumped on because you don’t know how long this will last.

If you still find a gap look for ways to cut even essentials. Is moving in with family and option? Can you do with one car? Also keep your eye on the stimulus package being worked on in congress to see what you qualify for and how soon it will be rolled out. Anything they do is likely not enough to plug all the holes but you should make sure you get everything you qualify for.

If you still do not have enough income to cover your bills you need to prioritize them. Some bills maybe easier to put off than others in light of some of the state and federal executive orders, but unless the orders come with forgiveness that is just kicking the can down the road. While kicking the can down the road may be better than losing your house or apartment immediately, don’t lose sight of the bills that are piling up and not going away.

If you are fortunate enough to be gainfully employed but all your savings are in the stock market and you have no real plan for your long-term investing it is time to implement a plan. You need to have a cash emergency fund that can last you at least six months. You want to build that up as soon as possible. If you are very secure in your job you may be able to build it up over time by not contributing as much money to your stock buying plan, but you still want to get your company match. If you are not as secure you may want to sell some stock now incase things get worse. While I normally recommend against selling stock in a down market, unless absolutely necessary, if you have no cash, realizing things could get worse, you may have to cut your losses and learn from this experience.

If you are in a safe place with your job and cash reserves I would wait out the storm before selling. In upcoming post I will talk about making lemons out of lemonade in a down market.

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