Pandemic Lessons - 6 Months In

Brian Hughes |
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“A man who carries a cat by the tail learns something he can learn in no other way” – Mark Twain 

Unwittingly, the year 2020 has us all carrying the cat by the tail. Covid-19 continues to cause disarray in business, schools, and just about every facet of our lives. I’m as fatigued as anyone by the impacts and ready to get back to normal, whatever normal looks like going forward. Challenging events provide experiences that lead to wisdom over time, but only if we learn from those experiences.   

 Expect the unexpected 

 “Doesn’t expecting the unexpected make the unexpected expected?” – Bob Dylan 

There is no consistency in how long it takes me to drive to or from work each day. Sometimes the roads are clear, and it’s a smooth 20-minute drive. Other times there’s an accident on the road that delays everything. Try as I might to figure out exactly when I need to leave each day to make it precisely on-time, there are just variables that I’m unable to control that impact my arrival time. My drive to work is relatively short, but the further I am away from my destination, the more likely there will be some speed bump or detour along the way. I still get there, but sometimes it’s not by the time or the path I planned to take. It’s no different with financial plans.   

Michelle and I work with clients on various aspects of financial planning, depending on what they need. We spend a significant amount of time collecting information about finances and goals, thinking through assumptions, and creating a roadmap for making it work. When we create the plan, it’s a plan that looks good at that moment in time. I hope the pandemic reminds us of an important lesson; stuff happens that is impossible to predict. The further you are away from your financial goal, the higher the chance that something will happen between now and then. Sometimes they’re minor events, and sometimes it’s more serious. Still, you need to expect the unexpected. For any plan to survive over time, you need flexibility and a willingness to adapt your strategy to change with the conditions.   

Cash is king 

 “The only issue cash presents you is the independence of not stressing about funds” – Johnny Carson 

In my opinion, the single most important investment we can all have is an emergency savings fund (see my full article about this here). The pandemic has brought this lesson back to the forefront. Yes, savings accounts are boring. Yes, they earn next to nothing. Savings accounts provide a safety net, though, when things don’t go as planned, helping to keep your investments invested and keep you out of a bad financial situation. Even if you didn’t have significant economic impacts from COVID-19, watching the unemployment rate spike and businesses close should provide a stark reminder to keep some cash set aside for emergencies.   

 Don’t get caught up in the hype 

 “The stock market is designed to transfer money from the Active to the Patient” – Warren Buffett 

The entire year of 2020 has felt like a dramatic swing of emotions, with the markets equally responding to them. In the middle of March, I had to make a conscious effort to disconnect myself from social media and news at night to get a break for a few hours from all the constant bad news. For many, the uncertainty of the pandemic caused fear that contributed to a rapid sell-off. The fed and government stepped in, folks became more optimistic about treatment and a vaccine, and the market rebounded very quickly. As Michelle wrote in an article that appeared in the Jacksonville Business Journal, both fears of missing out on market opportunities and fears of not taking proper investment precautions have been very prevalent emotions this year.   

I am a big believer that fear and greed are both terrible reasons to make investment decisions. Many investors bailed out of the market in mid-March, which was the exact wrong time. Subsequently, investors have bought in trying to capture the rally. In fact, a recent Yahoo Finance-Harris poll indicated 43% of respondents are using options, margin, or both to leverage their positions, which amplifies both gains and losses. Undoubtedly, we will hear stories of investors who hit the right trades at the right time. It can also be fun to do the research and take the chances; quite frankly, sometimes I do this with a satellite portion of money that I can afford to lose and does not jeopardize my long-term goals.   

The problem with active trading is you have to be right on when to buy and when to sell, and you have to do so consistently over time. Evidence shows investors aren’t that great at timing markets.  A study recently found that in the 30 years ending in 2019, stock fund investors had underperformed the S&P 500 index by almost 5% per year. The underperformance is largely attributed to mistiming their moves in and out of the markets. Investors are better off investing for the long-term by following Warren Buffett’s advice and staying patient. We learned that again, after the market rebounded when things seemed to be at its worst.   

 Stay grounded to what is important 

 “Not everything that can be counted counts, and not everything that counts can be counted” – Albert Einstein 

My favorite quote out of all these is the one above by Einstein. I am a financial advisor, so it’s generally about investing and planning topics when I write. The biggest lesson by far to come out of the pandemic has nothing to do with money. Relationships with friends and family have become more distanced than ever, which has reminded me of how much those relationships count, far more than anything monetary. Everyone has been impacted by this pandemic and have had to make choices with no real right answers. What’s right for one person is not necessarily what’s suitable for another. It’s been amazing to me to see how people have adapted to remain connected and supportive of each other. Through the pandemic, I have been reminded of what is really important to me; it’s the people around us who make life great.   

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are unmanaged and do not incur management fees, costs, or expenses. It is not possible to invest directly in an index.