AS THE ECONOMY BEGINS THE LONG, SLOW TASK OF RECOVERING from the government-imposed economic shutdown, families must take stock of the damage, and formulate a plan to capitalize on the recovery, safeguard against future calamity, and repair their personal economies to the degree possible.
One of the cardinal rules of financial planning is to keep between three- and six-months’ worth of expenses in a cash reserve. This is true for businesses and individuals, alike.
Until now, many people might have difficulty imagining a time in which they might need that much liquidity. Disability, loss of work, and now, apparently, total economic shutdowns can completely upend your financial life and induce massive amounts of stress.
The unthinkable happens and having enough cash-on-hand to safely get your family or business through these times protects your ability to maintain your standard of living and resume normal life when circumstances make that possible.
Cash is king, and if you did not have an adequate reserve prior to the shutdown, consider making that a goal over the coming year or two.
In the past two months there have been numerous programs introduced to help you through these tough times. The CARES Act includes options for individuals and businesses to receive benefits. There are increased unemployment benefits for workers who have lost their jobs, and for the self-employed workers who are kept from their avocation by the lockdown. Navigating the system can be difficult but, remember, the system is being overloaded by the number of applicants, so be patient.
There are several programs available for small businesses as well. The Payroll Protection Program, EIDL Loan Advance, and SBA Express Bridge Loans are all available to small businesses to help them retain employees, maintain solvency, and continue or resume operations when possible. Small businesses are the heart and soul of the community, and these programs offer a lifeline. If your business has been affected, consider exploring these options.
Finally, a word on the investment markets.
Positioning your assets for a recovery is vital to helping your account balances heal. Consider whether your portfolio is out of alignment and may need to be rebalanced.
Let’s say that you intend to be invested in a portfolio that is 80% stocks and 20% bonds. When the markets pulled back dramatically, the value of your stocks may have decreased much more than the value of your bonds. If you look at your portfolio today, you may find that it is now 70% stocks and 30% bonds. In other words, it may be much more conservative than you intended and that could impede the ability for your balance to recover if the stock market increases substantially.
The depth and duration of the market slump will be determined by the length of the shutdown, so it is impossible to say how long a recovery will take. While the past is not guarantee of the future, it can be a guide and we do know that every single time the US markets have receded, they have eventually rebounded and found new highs.
We will probably enter a recession this quarter, but it is likely a recession in name only. Recessions typically occur due to some underlying fundamental flaw in the economy which needs time to work itself out. That is clearly not the case this time around. In fact, the economy was extremely strong prior to the government hitting the emergency brakes, so typical thinking around how long a recovery might take could be grossly inaccurate. In fact, if the economy is substantially reopened by the end of the quarter, you might be surprised to see very positive data as early as the third quarter.
Remember that any forward-looking statements are subject to change as new information becomes available, so work closely with your Certified Financial Planner® to make sure that your plan accurately reflects your needs, goals, timeframe, and risk tolerance, and economic reality.
Stephen Kyne, CFP® is a Partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck.
Securities offered through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. Advisory services offered through Sterling Manor Financial, LLC, an SEC registered investment advisor or Cadaret Grant & Co., Inc. Sterling Manor Financial and Cadaret, Grant are separate entities.