March has been a month of brutal volatility in the stock market. The S&P 500 had its worst day in more than a decade — and there were six days this month where the daily return has been up or down 5 percent. Coronavirus has ripped through the U.S. economy seemingly overnight, despite plenty of advance warnings, in a way no one had foreseen.
It's been hard for anyone to predict what's in store for the next few months; how much more the virus can spread, how long people will be on lockdown, whether or not they'll have work in the short term. Life came to a halt last week; restaurants are closed and travel is on hold, putting millions out of jobs and millions more in service-related industries to come. The streets are empty. People are campaigning on social media to shop at small businesses so they can have a sliver of a chance of reopening when this panic subsides, but they're still not consuming as much during this time.
We talked to three financial advisors about how to take prepare yourself financially for this recession — besides saving money. Most importantly, they said, stay focused on your own goals — everyone is different — and try not to get distracted by any emotion or anxiety that this global health crisis naturally creates. Here are a few things to keep in mind.
Assess Your Situation — and Stay Calm
Like physical health, each person's financial health is incomparable to anyone else's, so be sure to truly assess your own needs and goals before taking action. Maybe you're looking to pay down a credit card, maybe you're saving for a hefty expense in the near future, or maybe you're just looking to build your wealth in general.
Wherever your priorities are, focus on the things you can do over the next 30, 60, or 90 days, and try not to get overwhelmed by what might happen over the next 30, 40, or 50 years, said Brian Walsh, a financial planner at SoFi.
"There's a big difference between assessing your finances and developing a strategy, and obsessing over your finances — checking your account balances and your investment accounts nonstop, or watching the news or being on social media nonstop, and letting that lead to worry, fear, and anxiety that could ultimately impact your decisions," Walsh said, calling it a "balancing act, between staying on top of things but not obsessing over them."
Once you've taken stock of your goals you can determine an actionable first step. Cutting expenses, building up a cash cushion and paying down debt are manageable places to start.
No matter what your goals are, make sure you have some cash on hand (physically, if you want, but storing it in a cash management or other deposit account is fine too in the digital money era). Income from your job controls a lot of that, but if possible, try to adjust your expenses accordingly to create more cash flow for yourself.
For some, it should be easier now than ever, with everyone staying home and spending less on most leisure expenses like eating and drinking out, said Chris Hutchins, head of financial advice automation at Wealthfront. But some are at the same time losing work hours.
"As much as there are a lot of people saying the markets down and you should buy, it's also important to make sure you have enough cash on hand to cover your short term needs – things like an emergency fund that, maybe, covers six months of living expenses," Hutchins said. "If you have bills or major expenses coming up in the next few years, those are also important things to keep in cash."
Fidelity recommends having three to six months of essential expenses in savings.
"If you don't have that, it might make sense to assess where you could move money from," said Melissa Ridolfi, vice president of retirement and college leadership at Fidelity Investments.
After you've assessed your income and expenses, make sure your cash flow isn't greatly impacted by what you do with your debt — whether its credit card debt, medical debt, student loan debt, or something else — especially when you might be uncertain about your short term income.
But when looking at your debt, see if you can create some efficiency in the short term or the long term, by taking advantage of lower interest rates and refinancing it, Walsh says. That can apply to any type of loan, and there might be an opportunity to reduce your interest rates, possibly reduce your payments, and create some extra room in your budget.
"The fed cut rates to the lowest band there is, zero, so if you refinanced your home a year ago, depending on those costs and what rate you had, it could make a lot of sense to consider doing it again," Hutchins said. "Interest rates are so low right now you could lock in a pretty decent rate for 30 more years."
Once you know that information, look at any "bad debt" or high interest rate debt, Walsh says, and start attacking it as quickly as possible given any budget constraints, and making sure that you maintain that cash safety net.
If you have liquid cash, and if you've paid down your bad debt, think about investing. Whether you're new to investing or not, there are two ways to approach it right now. Either way, try to reduce the emotional turmoil that comes from investing in the market, watching it go down, and probably, watching it go down more.
You can invest all your available money now while the market is down, or you can invest it over a period of time.
Investing over time helps "remove some of the anxiety of doing everything all at once with all this volatility," Hutchins said, and "protect from the fact that that volatility could be bringing downside over the next few weeks."
"If you're going to use this money within the next three years, it shouldn't be invested in the market — or it should have never been invested in the market," Walsh said. "That should be in a cash management account because that short term money that shouldn't be exposed to volatility like we've been seeing in the last month."