We’re currently living in a very weird world right now. What started as a disease in a far away place has quickly spread all over the world. Fear and panic has swept our world, and quarantine and isolation has become the new normal for many. Companies scrambled to come up with work from home plans, schools closed with “online learning” the new normal and grocery stores saw their shelves emptied of most items, most notably toilet paper. (I actually had a scare yesterday thinking we were out of toilet paper…and that we wouldn’t be able to buy any…but thankfully we still have some). Financially speaking, in under a month, the stock market has fallen 20%. That’s pretty tough to stomach. We all work so hard for our money, and attempt to invest for it to grow in the future, and when it loses value so fast, that’s difficult to watch. We’re definitely in unchartered territory right now, with words like “closed indefinitely” being our reality. 

In the midst of all this noise and uncertainty, I felt I should do a post on our personal finances, what it will mean for us moving forward, and how I’m trying to make sense of this world we live in. PS – this is a bit of a longer post – but let’s be real – what else do you have to do right now with your life, aren’t we all in the same boat semi-self-quarantining at home?

We all knew this was coming

Up until recently, the US economy had experienced the longest bull market, or period of expansion (growth) we’ve ever seen. For 11 years in a row, the market grew, grew and grew some more. This is pretty amazing, and for many young professionals, it’s all we knew. I graduated college in 2011, and saw my retirement and investments grow year over year. It was almost as if we forgot that markets actually go through cycles – expansion and recession, and we assumed that expansion was the new normal! 

All the financial minds knew that this growth market couldn’t last forever and that sooner or later we would run into something that would slow the economy down. I wrote an article in August of 2018 talking about how eventually a recession would come and even did a follow up article October of 2019 talking about it again. In both articles I basically said the same thing, and it’s the same thing I’m saying now – cycles are a part of our economy, and even though a recession is coming, we shouldn’t panic and should stick with the long-term plan. Expansion/growth markets don’t go on forever!

Well, now apparently the expansion is over, and we’re faced with slowing growth. Actually is feels more like instead of hitting the brakes and slowing down safely, we’ve ripped the emergency brake in our car going 60 mph (95 kph for our international readers) and it’s amazing how fast everything has STOPPED. Think about it – probably like you, I’m not really planning on buying much, especially not big purchases in the near future! Just groceries and maybe some toilet paper! I’m not going out to eat as often, won’t be going to concerts or sporting events, and the mall is the last place you’d find me right now. So, now that we know this shouldn’t be a huge surprise to us, let’s keep going on how to think about this mess we’re in. 

Cycles are a part of our world 

History always repeats itself, and the same holds true for the stock market. We’ll have a few years of good growth (expansion) and then a few years of recession. We’ve seen this all throughout our modern age, and each generation probably has their own stories to share. Your grandparents may have stories of the great depression of the 1930’s, your parents the craziness of the 1970’s, and probably most of us remember the 2008 financial crash (have you seen the Big Short? – great movie). Each generation will probably tell a similar story – everybody being really scared, uncertain and grocery stores running out of groceries for a bit. 

The good news is that the stock market has a track record of 100% recovering from these recession and terrible times. As bad as things may seem now, know that in the past, things have always gotten better. Economies recover, people start buying stuff again, businesses hire, invest and grow, and the stock market comes back. I know it’s hard to keep the big picture in mind, but if you do, you may stop worrying as much. Take a look at the below chart (pulled from this website) and try to put yourself in the shoes of those people during those critical times in the past, and imagine what you would tell them in light of what you know now with the big picture in mind. 

With that hindsight in mind, I would suggest that you keep your head on straight and carry on! 

Act smart, but don’t panic 

Although we are in unprecedented times and your life is probably going to look different for the next few weeks, months, maybe a year, don’t forget the last point that things will bounce back sooner or later. So, how should we act moving forward? 

What I’m personally doing is “acting smart, but not panicking”. Think of it also like “keep calm and carry on” – the famous slogan that came about in the U.K. during World War II (talk about a rough time). I’m not going to be doing any major purchases in the near future (sigh, really wanted to go to Barcelona this summer…) and won’t be going out and about as much (not that there’s anything to be doing right now…everything has been cancelled or is closed). Oddly enough I may be able to save more in my budget – as there’s not as much to spend money on!

I’m also not going to panic and pull all my money out of the stock market either. Pulling out now may feel good because it’s safe, and it is tempting as daily I’m just watching my investments drop (and occasionally pop up – very volatile right now). However, I don’t need that money now and selling now to buy back in later requires me to be lucky twice – to time the right time to sell (high) and buy back (low). I’ve gotten burned trying to time the market before and have decided I won’t play that game again. 

I am going to keep investing in the stock market, as if you take a step back and look at it – things are on sale right now! 

Continue on as usual, things are on sale right now 

One of my favorite movies growing up was Back to the Future. I loved all the science, all the action, all the laughs. In one of the sequels, while the characters were in the future, one of the villains in the future slips a sports almanac into Marty McFly’s time traveling car and when Marty heads back to the past (well present for him), the past villain finds this sports almanac from the future and upon realizing what this gift is, puts it to good use and correctly places winning sports bets. He obviously becomes very rich with this knowledge! 

Imagine what you would do with the stock market if you could go back in time and take that above chart that I put in the article. If you’re looking for a good time to buy – it looks like the 1930’s, 1970’s or 2008 would have been a great time to buy! 

Of course living in the present we don’t have this luxury of knowing what the market will do moving forward. There’s also an adage of trying to catch a falling knife – ideally you’d like to pick it up after it’s already hit the ground (i.e. the bottom) but it’s hard to know! You may grab it now but it may still be falling and you end up cutting yourself. The same adage holds true in the stock market. I actually put some money in the market this past week, only to see it fall after that! 

So, in light of a) wanting to buy stocks at a good deal but b) not wanting to get burned, how should you approach your continued investing? I’m a big believer in a slow, consistent process of buying into the stock market. In light of recent events, I’m actually not changing much with my investment strategy. I’m still contributing 15% to my 401(k) through work, and I’m still setting aside 10% for my employer’s stock purchase program to buy company stock. I do still have some cash from rolling over my 401(k) from my old job, but only because I was steadily putting in $500 or $1,000 every few weeks. Sure I may accelerate this buying a little more in light of the market being down, but I’m staying the long-term course. 

Unless you’re trying to retire in the next 1-5 years, keep your investment strategy steady! If history is any guide, you’ll look back 10 years from now and be glad that you kept buying into the stock market! 

You really need an emergency fund

Finally, if anything this crisis going on right now is a great reminder of the importance of an emergency fund. One of my earliest articles was entitled “The Importance of an Emergency Fund”, and the same idea holds true today as it did in 2013. Bad things happen in this world, and it’s not a matter of if, but when you’ll face a financial emergency in your life. Whether it’s losing your job, getting hurt at work and not being able to pay your bills, having a large unexpected expense or something like the Covid-19 virus, having a well stocked emergency fund is critical. 

I’m seeing it amongst my friends right now; some are worried about not being able to work and not getting paid. Think about the service industry employees – how often do you see yourself going out to eat in the near future? What about retail – how many times will you go to the mall? What about taking an Uber or Lyft? I’m glad to see many companies taking a stand and promising to pay employees for the next few weeks even if they don’t have work. That’s probably a very scary thought – not being able to work because your business is shutting down and not getting a paycheck. Would you be able to survive being laid off for a few weeks? 

If you don’t already, start using this time, or when things get better to build up an emergency fund. Open a separate savings bank account so you’re not tempted to spend it unless it’s an actual emergency and then start building it up. Do what it takes until it’s at $1,000. Figure out what your monthly expenses are and how much you would need to have set aside to survive on a monthly basis. Take that number and then build your emergency fund up to 1 months worth of expenses, then 3 months, then finally 6 months. Your future panicking self will thank you!

Summary

We’re living in very weird times right now. There’s no sporting events on TV to watch, many of us have been asked/told to work from home, school is postponed or cancelled, and no one is thinking about doing much in the near future aside from sitting on our couches watching Netflix. Take comfort in the fact that this won’t last forever, the market and economy will come back, and keep the long-term course of investing in the stock market! Be smart and make sure you have an emergency fund, and maybe increasing your savings levels a little bit too but certainly don’t panic and put it all under a mattress! If you do get super bored know that we’ve got 7 years worth of personal finance articles on this site and even have some more in-depth guides if you’re trying to improve your financial situation during this national “stay home and chill” period. 

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