Covid-19 has us all feeling afraid and helpless.  Between health worries and economic uncertainty, it’s easy to feel as though there is nothing we can control.  However, just as we can shelter in place, social distance, and practice good hygiene, so there are concrete financial steps to take now to get us through this and position ourselves for Covid-19’s aftermath.

Review Your Expenses.  The economic contraction has likely also contracted your discretionary expenses.  Beyond food, drink, and streaming services, there’s very little to buy.  Review your last months’ worth of disbursements with an eye to quantifying and redeploying those unspent funds.  Similarly, look at your automatic expenses—can you turn off commuting costs or similar for the duration?  You can put any excess cash flow to better use.  

Build That Rainy-Day Fund.  Financial planners advise investors to have from three to six months’ worth of living expenses in savings.  This fund is separate from investment accounts—think of it as an insurance policy.  It’s for job loss or another financial emergency, allowing you to meet your cash needs without touching your investments.  If you are lucky enough to have maintained your income stream, use this opportunity to bolster that fund.  Because cash earns next to nothing, don’t hold more than you need.  That would be like insuring your five-year-old car for twice its value.  

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Consider Refinancing or Prepaying Loans.  With the financial meltdown comes some reduced borrowing rates.  Lenders appear to be reducing mortgage rates cautiously.  If your mortgage rate is above 3.5 percent, look around.  The best deals out there appear to be on fifteen-year loans.  Is refinancing worth it?  One test is whether two years’ of saving through reduced interest payments is at least equal to the cost of refinancing.  As an alternative to refinancing, some lenders will modify a mortgage.  The rate difference is less than with a refinance, but so are the costs.

Borrowers with federal student loan debt received a real bonus from the CARES Act.  Both interest accruals AND payments have been suspended through September 30.  This presents aa great opportunity.  If you can continue paying, direct your usual monthly payment (or more, given those reduced discretionary expenses) to the loan with the highest interest rate.  That will significantly reduce the loan’s remaining life.  

Private student debt has no similar forgiveness.  Again, it may be worth another round of refinancing.

Rebalance.  When you established your investment plan, you had a defined asset allocation.  Recent market gyrations have no doubt thrown your portfolio out of that balance.  As hard as it can be, now is the time to buy beaten-down asset classes and restore that balance.  This sets your portfolio up for the near-inevitable rebound.  

The chart below (courtesy of Fidelity Investments) show the stock market’s one-year performance from market lows, going back to the Great Depression.  You cannot control when the rebound will occur, but you can prepare yourself for it.

Peak

Trough

Duration (months)

Bear market magnitude

Recession during bear?

1-Year return after trough

9/3/1929

7/8/1932

34

-86%

Yes

124%

3/10/1937

4/28/1942

61

-60%

Yes

59%

10/9/2007

3/9/2009

17

-59%

Yes

68%

3/24/2000

10/9/2002

31

-49%

Yes

34%

1/11/1973

10/3/1974

21

-48%

Yes

38%

11/29/1968

5/26/1970

18

-36%

Yes

44%

8/25/1987

12/4/1987

4

-34%

No

23%

5/29/1946

6/13/1949

37

-30%

Yes

42%

12/11/1961

6/26/1962

6

-28%

No

33%

11/28/1980

8/12/1982

21

-27%

Yes

58%

2/9/1966

10/7/1966

8

-22%

No

33%

8/2/1956

10/22/1957

14

-22%

Yes

31%

7/16/1990

10/11/1990

3

-20%

Yes

29%

09/20/2018

12/24/2018

3

-20%

No

37%

 Average

 

22

-39%

 

47%

Source: ISI, Bloomberg, National Bureau of Economic Research, Haver Analytics, FMRCo (Asset Allocation Research Team) as of February 26, 2020. Data based on S&P 500 Index price returns. Duration ends with a complete retracement of losses. Recessions are defined by the National Bureau of Economic Research. Past performance is no guarantee of future results. You cannot invest directly in an index. The S&P 500®, a market capitalization-weighted index of common stocks, is a registered service mark of the McGraw-Hill Companies, Inc. and has been licensed for use by Fidelity Distributors Corporation.

Note: Claire E. Toth, JD, MLT, CFP™, is Vice President and Chief Operating Officer at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit. Visit us at  ptview.com.

Point View Wealth Management is an SEC-registered investment adviser and part of Peapack Private Wealth Management. For over 25 years, Point View Wealth Management has been providing customized portfolio management services and comprehensive financial planning solutions for individuals and their families to develop and achieve their financial goals. 

Contact us at 908-598-1717 or firm@ptview.com for more information and or to arrange a complimentary consultation.

Point View Wealth Management is located at 382 Springfield Avenue, Suite 208, in Summit.