The Seven Critical Steps to Take in Tough Economic Times
During these volatile economic times when unemployment is at an all-time high, many people are hurting and if you are retired it can be even scarier. So, what should you do? Hopefully, these seven steps will help bring peace of mind or at least give you a plan to focus on.
- Fear not! Fear generally either paralyzes people into inaction or prods them to a purely emotional response. Many people are taking the old ostrich approach and not even looking at their investment statements. If you have (or you and your advisor) have a plan you should review that plan’s progress regardless of what has happened these past several months. Reviews done even over the phone or video conference are better than those that you don’t do at all. When it comes to your financial future - ignorance is not bliss. Avoid panic; it won’t help your health or the situation.
- Take deliberate thoughtful action. Planning is the key to long term success. If you aren’t comfortable with your asset allocation you should change it. However, realize that if you are switching from investments that typically grow at a 70 year average of 7-9 percent and are going to move to fixed income that grows at a substantially lower rate you may take a lot longer to get back to where you were. Also, that right now high-quality fixed income investments are trading at a premium and pay little in the way of return, so if you move completely out of stocks into bonds you may be buying high. If you are leaving your assets to your kids or grandkids, they can afford a longer recovery time so having more fixed income may be less important.
- Review the fees you pay. Many people have no idea what they pay in fees and to whom. Even no-load mutual funds have internal expenses that can dramatically affect performance. If you are talking to someone who is trying to sell you something, ask them exactly what they make. There are many low expense investments like ETFs (Exchange Traded Funds) which may be a better alternative for you.
- Cut back. I read recently about a hard charging executive deciding to spend a few days winding down at a monastery. The monk showed him to his room saying “If you need anything, let us know. We will teach you how to live without it.” Happiness isn’t getting what you want; it’s enjoying what has already been given to you. I’m not a big proponent of the “monk” lifestyle, but being more conscious of what you spend your financial resources on and how you may easily be able to do without will save you a lot of financial heartache now and in the future.
- There is no such thing as a free dog. Have you ever had your child come home with a new puppy and tell you how this is a free dog? I have. There isn’t even any such thing as a cheap dog! They require shots, food, spaying/neutering, bowls, and all kinds of things. The pet industry has grown to a $95.7 billion dollar industry in 20191, but I digress. The point is that even if you go out and buy “cheap” there may be high costs in maintenance of that purchase. Real estate as an investment is a good example of this. Real estate requires insurance, taxes, utilities and other maintenance. It is also expense and time consuming to sell. A lot of times things are never actually free and often not cheap. If you evaluate all your assets in this light, you will be better off.
- Connect with people. Tough financial times cause stress to a lot of people. Connecting with people is even harder during a time when we are told to socially distance and not gather in large crowds. Families are torn apart by finances typically at times when family support is critically needed. You and your family will be able to solve issues collectively much more efficiently than you ever could alone. Be kind and supportive to your family and friends. Volunteer somewhere, even if you don’t have the extra funds to help someone with, you can do a lot of good volunteering and helping others. You won’t believe how good you will feel.
- Take a break from the news. I’m not saying be ignorant about what’s going, just don’t let it consume you. Too often people get worked into a frenzy over issues that they cannot control and items that will work out of over time. Unfortunately, we are an impatient nation that wants resolutions to take effect immediately.
Bottom line is we still live in a great country with great people that have recovered from many devastating events in the past. With cool heads and deliberate action, we will recover from this as well.