By Jill Schlesinger
Tribune Content Agency
COVID-19 started as a health pandemic and then became a financial pandemic — now the two are intertwined. Let’s start with the big picture on where things stand and then we can get to your action plan for the second half of the year.
US Economy: First quarter growth contracted by 5% on an annualized basis and the second quarter is likely to be worse, with predictions for a 20% drop. While the second half should pick up, economists believe that the US economy will be 5% to 8% smaller by the end of the year, than it was in January.
Labor Market: A staggering 14.6 million jobs have vanished since the pandemic started, which includes the 7.5 million jobs added in May and June; and the unemployment rate finished the first half of the year at 11.1%. The rate is likely to remain elevated through the end of 2020.
Federal Reserve: According to predictions by Fed officials, 0% interest will be with us for another two years...yes, years. Additionally, the Fed continues to be the lender of last resort, making trillions of dollars available to purchase assets.
Government Spending: The CARES Act has provided direct relief to individuals in the form of Economic Impact Payments and beefed up unemployment benefits, which added $600 per week to sidelined workers. Congress is working on adding more relief to the package in the coming weeks.
Stock Markets: It took less than six weeks to end the longest bull market on record, when US stocks lost over 30% of their value and hit the bear market bottom on March 23. Since then, there has been a 40% increase. With interest rates at zero - and few compelling alternatives, investors have bet that even if the economy were to falter this summer, money will continue to flow from Congress and the Fed.
So what should you be doing with your money? I went back to my January post to see if my pre-pandemic advice holds. Thankfully, it does, though I have updated aspects of these goals to reflect the pandemic economy.
Goal #1: Track cash flow
There’s nothing like a crisis to highlight a critical aspect of financial planning: understanding how much money is coming into your household and the amount that you spend. If you don’t get this concept right, it’s hard to make informed decisions about your financial life. To track your cash flow, download a free app.
Goal #2: Put your money on auto pilot
Use technology to manage due dates on bills and to establish auto pay on available accounts. If you are paying down debt, establish automatic payments, even for a small amount, so your most important expenses get paid and you can avoid — or at least minimize, penalties and fees. If you are saving on your own, you can automatically transfer money from your checking or savings account to an IRA.
Goal #3 Embrace the unthinkable
The pandemic has made conversations about illness and death a necessity. Overcome your anxieties to create (or update) a will, a health care proxy, which allows you to appoint someone to make health care decisions on your behalf if you lose the ability to do so; and a durable power of attorney, which allows you to appoint someone to act as your financial agent in a variety of circumstances.
Goal #4 Stop trying to time the market
When you feel the itch to do something with your investment or retirement accounts, remember this acronym: “WAIT” or “Why Am I Trading?” Stay out of trouble by falling prey to your emotions and stick to your game plan.
Jill Schlesinger, CFP is a business analyst for CBS News.