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Dave Ramsey's Smartvestor

How Will the Coronavirus Impact Your Money? Steps to Prepare

March 18th, 2020 | 4 min. read

By Jacob Schroeder

How Will the Coronavirus Impact Your Money - imageRight now, you may be experiencing concern and uncertainty surrounding the coronavirus, as well as its impact on the capital markets and economy. At Advance Capital, the well-being of you and your family is our top priority, so our hearts go out to all those who have been directly affected.

During these times, it’s important to have a plan. Because an emotional or impulsive decision often ends up being the wrong one. Any changes to your plan should be made based on solid economic data and concrete facts.

The economy still seems relatively healthy with very low unemployment, a robust jobs picture and a housing rebound. Economic activity has been only minimally negatively impacted from the virus and supply chain disruption. Already, the Federal Reserve made an emergency cut to short-term interest rates as an insurance policy, and more might be on the way. And, policymakers are discussing various fiscal measures to help ease the financial burden on workers and companies should the situation worsen.

However, there is rising risk of an economic slowdown over the next three to six months. This could be caused by individuals choosing to stay home and cutting back on restaurant, travel and entertainment spending. We have already seen many colleges close their campuses and send students home, with primary and secondary schools preparing to follow suit. This will likely impact many small businesses and hourly workers around the country.

Although we cannot predict the future, we can prepare. And, by preparing, we can get through this.


A recession can impact you in a variety of ways. The worst of which is arguably the loss of a job. A common feature of recessions is a rise in the unemployment rate, which spells trouble for many people.

Everyone should have a recession disaster plan. Taking precautions in all areas of your financial life will help alleviate any financial pain when economic trouble hits. Here are some steps you can take right now:

Increase your emergency fund – the rule of thumb is to have three to six months’ worth of expenses saved. But during times of economic trouble and high unemployment, it is better to increase that to nine months or even one year.

Review and adjust your budget – consider refraining from any unnecessary discretionary expenses as well as lowering non-discretionary expenses, if possible.

Pay down outstanding high-interest debt – during a recession, you want to have as much liquid cash available as possible during a recession. However, make sure to build a sizeable emergency fund first.

Prepare for unemployment – even if you don’t feel your job is at risk, now is the time to think about what you would do if you did lose your job: update your resume, learn new skills, research companies that are hiring and evaluate your contact network.

Evaluate your health insurance options – even without a job, you may still have options available to you for health insurance. Look into your ability to join your spouse’s coverage (if married), signing up for COBRA or finding coverage through the Affordable Care Act Exchange.

Consider adjusting your retirement date, if possible – waiting a year or so could put you in better position to start drawing down your assets.

Talk with a financial adviser – if you have concerns about your recession preparedness, talk to a financial adviser who can provide a professional assessment. There is a lot of room to make costly mistakes. Instead of attempting to do it alone, an adviser can help you with everything from creating a financial plan to building a long-term investment portfolio and providing honest guidance to help keep your emotions in check.

For additional insight on preparing for a recession, check out our guide: Protecting Your Money Against a Recession.


Heightened fears of the coronavirus have led to a steep market selloff. Stocks are down about 20 percent from their recent all-time highs. But bond yields have fallen, which increases bond values. Further, there are positive aspects of the market selloff that should help the economy recover faster. Lower oil prices mean drivers will save at the gas pump, and lower natural gas prices mean lower heating bills. The collapse in interest rates has led to record low mortgage rates.

Still, watching your 401(k) or other retirement account drop never feels good. The important thing is not to panic and keep focused on the long term. Aggressive market-timing moves, such as shifting your portfolio to cash, can backfire. Some of the biggest gains can happen at the tail end of an economic cycle or immediately after a market bottom.

The best way to prepare for a recession is to make sure in advance that your portfolio is aligned with your personal goals and designed to be balanced enough to benefit from periods of growth before it happens, while resilient during those inevitable periods of volatility.

Following are the building blocks for a long-term portfolio.

Diversify your investments – diversification, owning investments across a variety of asset classes, is a long-term investment strategy that is especially useful during a market downturn. It eliminates the guesswork and helps reduce risk, as the winners make up for the losers. Essentially, diversifying your assets can act as a restraint on portfolio losses.

Align your asset allocation with your goals – what asset allocation is right for you depends on personal factors, including your objectives, age, savings and income, current assets and attitudes toward risk. The objective is to have enough risk in your portfolio to generate the growth you need to achieve your goals, but not enough risk to suffer deep losses or to tempt you into ill-timed changes when the market fluctuates.

Keep a flexible withdrawal rate – an undesirable scenario is that you retire into a weak market environment and withdraw from a portfolio that’s simultaneously declining. Spending down in a down market can leave less of your portfolio in place to recover once the market does.

One way to bypass that danger is to maintain a flexible withdrawal rate. In a downturn, you may temporarily lower that rate while relying more on other sources of retirement income (pension, Social Security, etc.) and/or reducing your expenses. As market conditions improve, you can then raise your withdrawal amounts.

For additional insight on investing during a market downturn, check out our guide: How to Survive a Market Downturn.

The best time to take steps to survive an economic or market downturn is before it occurs. And the next best time is now.


Disclosures: Past performance is no guarantee of future results. Investments are not insured, and may lose money. Client should be prepared to bear the risks associated with investing.

This commentary contains the current opinions of the author as of the date above, which are subject to change at any time. This commentary has been distributed for informational purposes only and is not a recommendation or offer of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed.