5 Action Steps to Save Your Finances from the Coronavirus

1. Review Your Emergency Fund

Remember that emergency fund financial planners always tell you to have?  Make sure it is fully funded with 3-6 months’ worth of living expenses.  If you need to temporally stop 401(k) contributions to boost that cash reserve, do it now.  Review your emergency fund.

2. Stay The Course

In times of stock market turmoil, we all want to take action but the best action for all of us to take right now is to do nothing and simply stay the course. In times of financial crisis I like to listen to people like Jack Bogle, the legendary founder of Vanguard, when he said: “Never be out of the market and think you can get back in because your emotions will defeat you totally.” 

Trying to time the market never works. Fidelity investments recently did a study of the stock market from 1980 – 2019 and found that someone who missed just the 5 best days of trading made 35% less over that time period than the person who stayed the course.  Miss just 10 of the best days and your return drops over 50% compared to the person who rode it out.  Stay the course. 

3. Ignore the Naysayers

Beware:  Your neighbor will tell you that she sold before all this stock market turmoil happened because she had a bad feeling about things. Your brother-in-law will remind you that he timed the market right during the last crisis in 2008 and how much money he made buying back in at the perfect time. Every day you hold on while markets plunge, they will look right, and in the short-term they might be. So be polite but don’t be fooled.  Here is the truth:  If you stayed invested while they timed the market your returns would have beat them over the long run. No one compares account statements. Instead we compare our false recollections of history.  Ignore the naysayers.   

4. Keep Investing every month

Instead of taking investment advice from your neighbor or relatives, listen to another famous investor, Warren Buffet, on what you should be doing right now.  Buffet recently said on CNBC that “It [the virus] is scary stuff but I don’t think it should affect what you do with stocks”. 

In fact, buying more shares of your mutual funds when they are down is like going to the grocery store and buying things on sale.  You get more stuff/shares for your money.  Right now, stocks are on sale so continue buying in your 401(k) just like you did before this crisis hit.  When the market comes roaring back, you will be rewarded.  Keep investing every month.

5. Remember what you own

Many of you are invested in target date retirement funds in your 401(k).  These investments are based on your age and expected retirement date so they have a reasonable investment mix in both good and bad times.  Hold on to them.  Do not let your emotions in the heat of the moment dictate your decsions.

I also like to remind people that these mutual funds are more than just names on their monthly statement.  They own real companies making real products. Many target date funds own Microsoft whose program I am using to type this letter.  Apple whose phone is in my pocket.  Amazon who delivers to my doorstep while I work from home.  Take comfort in this knowledge.  Remember what you own.    

We will get through this together.  Long-term patience and discipline will be rewarded so keep the faith.  This too will pass.