In times of uncertainty, intuition tells you to take action. While doing something, anything, may make you temporarily feel better, it’s purposeful actions that will make a difference. To find out what moves could improve your situation, it helps to ask some pointed and unemotional questions – especially when it comes to your financial life.
Most of us right now are in our homes taking shelter, but that doesn’t mean your money or your financial plan has to. Here are some questions you should be asking about your money, retirement and financial security.
Do I have a sufficient emergency fund?
First and foremost, you should have enough cash to cover your expenses. A common rule of thumb is to have saved three to six months’ worth of expenses, but a year is even better. An emergency fund can help you not only financially overcome unexpected expenses but also the worst-case scenario: the loss of your job.
A sizeable emergency fund is especially important for retirees. In a market downturn, you may be able to rely on your cash reserves to cover basic needs while giving your investment portfolio time to recover.
Is now a good time to buy stocks?
It’s impossible to know where stocks will go at any given time, and especially in times of high market volatility. But what we do know is that stocks are generally cheaper than they were a few months ago, down from all-time highs. That means you’ll have better long-term returns because of these lower prices— as long as if you stay invested long enough to see the market rebound.
Historically, the market has always recovered. So, if you have cash on the sidelines, is now the time to buy stocks? That generally depends on what you need the money for and when. If you plan to invest for several years or more, then putting that cash to work in the stock market would likely make sense. You’re getting more favorable prices than the last all-time high, meaning you will have a chance to earn more as the market eventually recovers.
On the other hand, if you intend to speculate in the market, then don’t expect a quick profit. High market volatility will make any gains far from a sure bet. In this case, consider only putting in an amount you would be comfortable losing.
Should I sell investments?
If you’re thinking more conservatively, you may want to instead raise more cash in your portfolio. Increasing your allocation to cash may be a prudent decision based on your long-term goals. It could help brunt some of the effects of market volatility.
However, that doesn’t mean taking all your money out of the market and stuffing it under your mattress. Unless you have more money than you’ll ever need, a balanced portfolio should contain stocks to outpace the rate of inflation and even grow so you can stay on track.
What should I do with my 401(k)?
Simply put: keep contributing. Seeing your retirement savings drop is never easy. But time is likely on your side. You get to take advantage of those lower investment prices and higher expected returns. With regular monthly contributions, you’re essentially guaranteeing yourself to buy low and sell high. If anything, now may be a good time to consider contributing a little more.
Should I rebalance my portfolio?
Recent swings in the stock and bond markets may have thrown your desired asset allocation out of whack. Rebalancing – generally, selling what’s up to buy what’s down – helps you do two things. One, it allows you to reap your earnings. Two, and most importantly, it helps reduce risk in your portfolio while realigning your asset allocation.
Is my financial adviser meeting my needs?
The quality of your financial adviser will become most apparent in times of crisis. Now is when a financial adviser is needed most – to help manage your portfolio and guide you through the challenges ahead. You may prefer frequent or little contact from your adviser. Either way, he or she should be living up to those terms and addressing your immediate concerns. If not, then it may be a good sign your adviser isn’t a good match. And, there’s no rule that says you can’t change advisers during a challenging time.
Should I consider tax-loss harvesting?
Of course, no one wants losses in their portfolios. But by harvesting those losses, you can turn lemons into lemonade. Tax-loss harvesting is a way to sell your losing investments to help minimize your taxes. When properly done, you can sell investments that have lost value to offset up to $3,000 in ordinary income. There are a variety of rules to navigate, so this is best done with the guidance of a tax or financial professional to avoid triggering any unnecessary taxes
Should I refinance my mortgage?
Your largest nondiscretionary expense is likely your home mortgage. When mortgage rates plunge as they have recently, you may be able to refinance and save money. Or, you may be able to shorten the term of your loan from 30 years down to 15 years and pay it off sooner. Ultimately, refinancing will depend on whether you qualify for a lower rate, how long you plan to own the home and when you would recoup the closing costs.
How secure is my job?
As of now, small businesses and hourly workers are the first to be affected by nationwide shelter restrictions. However, the impact of the coronavirus on the economy could lead to much greater job losses. It’s worthwhile then for everyone to make sure to have things in place for that possibility, such as a well-funded emergency fund, an updated resume and options for continued healthcare coverage.
Can I delay retirement a little longer?
Retiring in a bear market and/or economic recession is far from ideal, as you may have to withdraw from a declining investment account. The surest and less painful option to circumvent this situation may be to briefly delay retirement. Just waiting a year could let your investment accounts recover, and let you avoid having to consider spending less in retirement. The right option for you will depend on your other assets and retirement savings.
How can I help others?
If you’re in the fortunate situation where the worst is the inconvenience of being stuck inside, then considering looking for ways to help those who aren’t as lucky. That could mean helping out financially, such as donating your stimulus check, if you don’t need it. Or, donating your time. Offer to deliver groceries to an older adult. Make homemade face masks for medical workers. Tutor children online. Pick up the phone and call a loved one to make sure they’re alright. Although we are living in challenging times, there are still opportunities to live with purpose.
What is most important to me right now?
Everything mentioned above is important, but not nearly as important as your health. Not as important as your sanity. Not as important as your time. The most important actions you should be concerned about right now are those that will ensure you and your family get through this healthy.
Time with loved ones will enrich your life more than anything else.