2020 has a futuristic ring to it, but the new decade is starting to look downright dystopian. Dramatic stock market drops, school closures and the widespread threat of unemployment are just a handful of factors in the evolving financial fallout of the coronavirus.
Here are six ways to help your portfolio, and future financial stability, weather the storm.
1. Utilize your emergency fund
Having money saved is good for a rainy day — and right now it’s pouring. If you’re facing a loss of income or an onset of unexpected expenses, don’t feel bad about using the money you’ve set aside. Remember: This is why you saved that money in the first place. Don’t be afraid to use it.
If you don’t have an emergency fund saved, don’t panic. Even in a financial crisis, you have options.
2. Control your expenses
Having a well-padded emergency fund is usually the best way to keep yourself from pulling money out of your investments, but in these uncertain times, it may not be enough. Put some additional guardrails around your portfolio by seeing where you can reduce expenses.
“I tell all my clients to focus on what they can control,” says Riley Poppy, a certified financial planner and founder of Ignite Financial Planning in Seattle. “We have no control over the coronavirus or what the stock market is going to do, and even for some, what their employer is going to do. So it would be a great time to review your monthly expenses and see if there is any room for modification.”
For example, now is a particularly good time to review your auto insurance. “If you’re working from home right now, you might not be driving a whole lot so you could save a little bit on your deductibles,” says Poppy.
3. Withdraw with caution
Tapping your emergency savings and cutting expenses can help you avoid having to pull money out of investment and retirement accounts. But if you find yourself in need of more cash, it’s important to know how to prioritize additional sources. Your first step should be to stop adding new contributions, an easy thing to forget if you have them set up to pull from your paycheck automatically.
If you do need to withdraw money from your investment accounts, it’s likely best to pull first from any taxable brokerage account you have, as these accounts have no withdrawal penalties. And usually we’d recommend pulling next from any Roth IRA you have, since contributions to those accounts can be withdrawn without penalty. And that advice may still make sense.
But Congress this week passed a bill that allows people affected by the coronavirus fallout to access up to $100,000 from their 401(k)s and traditional IRAs without the 10% penalty that would normally come from such withdrawals before age 59 1/2. Those withdrawals would still be subject to income taxes, but the tax bill can be spread over the next three years or avoided outright if savers return those funds to their retirement accounts before the three years are up.
Whatever option you choose, these measures should be taken with extreme caution, and perhaps alongside a conversation with a financial advisor.
4. Don’t rebalance — yet
Major market dips can throw your asset allocation — or the way you’ve split up your investment portfolio between stocks, bonds and other investments — out of balance, but the throes of a chaotic market is not the time to address it. Holding onto your investments through a market low gives you a shot at recovery, whereas selling your assets when the market has dropped locks in those losses.
Try to remember that recessions are normal and that those who stay invested during a downturn tend to see their portfolios bounce back and then some. Stay invested, if you can, and think about rebalancing later.
5. Invest with your age in mind
Some investors get excited about the prospect of “buying the dip,” or investing in stocks when the market is down. These market lows are scary, but they also allow you to buy assets at doorbuster prices, making it a beneficial time to put any extra money to work, says Poppy.
One way to do that is through dollar-cost averaging, which is just a fancy way to describe putting money into investments at regular intervals. If you contribute a percentage of every paycheck to your 401(k), you’re dollar-cost averaging. This strategy takes away the stress of trying to time the market: You’re naturally buying the dip when the market is down, and buying fewer shares when it’s up.
But keep in mind this advice primarily applies to investors with a long time horizon. Investors who are closer to retirement may not want to risk adding more money to a turbulent market. “For retirees, this is a time to look at their asset allocation and make sure they have enough fixed income and bond exposure, which can act more like a war chest in times like this,” says Poppy.
6. If you need financial help, ask for it
There are a variety of scary numbers making headlines right now. If you’re worried about your finances, there are several free or cheap resources you can and should turn to. Digital investment services called robo-advisors charge low or, in some cases, no fees to build and manage your investment portfolio for you, which can be especially beneficial when the market is volatile. And if a human advisor is more your style, the XY Planning Network, a network of fee-only financial advisors, is offering free financial advice to those who have lost income as a result of COVID-19.