Be prepared financially for an emergency that may arise
Health issues-wise, the economy is starting to turn the corner on the pandemic. While social distancing, hand washing and other preventive measures must continue, we are seeing fewer hospital admissions and deaths than a few weeks ago. This is great news!
The government faces a tug-of-war between health-care officials and economic leaders. We need to be careful of a second wave of infections. We need to develop more testing that is quicker and more cost effective. There is a lot not known about the virus, including whether can you get it a second time, what’s the cure and how soon could there be a vaccine.
Yet we have to balance this with starving the economy and getting people back to work. Business owners are seeing a lifetime of work disappear before their eyes. Many small businesses in our towns and cities may not survive. Many retailers have been closed for more than a month. They have stores full of spring, Easter and Mother’s Day apparel that can’t be sold. Retail buyers are purchasing Christmas merchandise.
How confident would you be to buy large quantities with all of the uncertainty? Our economy is 70% consumer driven.
We are hearing that close to half of all people are having trouble paying their mortgages or rent. Food banks are distributing millions of pounds of food. This is after only four to six weeks without work. This is why financial planners say you need six months of emergency money.
Auto plants are shut down. Who is buying a house? Hotels are almost empty. One large brokerage firm is predicting Disneyland and Disney World might not reopen until 2021, and then with limited attendance. Disney itself has not yet made a prediction. Last week, oil companies were willing to pay people to take their oil if people had storage facilities. That had never happened before.
In Pittsburgh, we are not playing baseball or hockey. All concerts and shows have been canceled with no idea when things will resume normally. This costs many restaurants and other businesses a lot of income, and it has cost governments millions in lost tax revenues. How do they continue to pay employees? How about infrastructure improvements like bridges and roads?
We have lost 26 million jobs and government debt is exploding. The federal government cannot bail everyone out. The Federal Reserve is printing money and Congress is passing it out. While we need this help temporary, we are going to have to pay for this with higher taxes and inflation. There is no great answer.
One area that seems a bit disconnected is the stock market. We went down in record time, then the next month we had the largest one-month increase ever – 29%. The market is down only 16% from its record highs.
While this still hurts, it is bearable. There could be a second dip if a surprise develops. The market probably does not reflect the new normal. Things are going to be different in the future. Only five stocks out of 500 make up 20% of the S&P total value. Wow!
The good news is we will overcome this crisis. Many economists believe it could take a year or two. Have your family better prepared for the next time. Save more emergency money and reduce credit exposure. Make sure your investments match your risk profile and time horizon.
Perhaps more people should follow the Boy Scouts’ motto, “Be Prepared.”
Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”
To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.