After five days of self-isolation (in my industrial-strength home office), I ventured out early this morning for some much-needed groceries during Gelson’s new senior hour. When I arrived just a few minutes after 7am, there were no carts available, and “social distancing” was utterly impossible. It was a bona fide mob scene. There was not a potato, an onion, or a head of cabbage to be found—the shelves were almost picked clean. I found a dozen eggs, a quart of milk, a handful of other items, and retreated home. It’s just one example of how different our world is from just one week ago.
When the real threat of the coronavirus first became clear, the economic impact was my first concern. Last May, the Federal Reserve reported that almost 40% of American adults don’t have $400 to pay for an emergency with cash, savings, or a credit card charge that they could quickly pay off  How would the virus affect those living paycheck-to-paycheck—or even bonus-to-bonus? When retail stores, bars, and restaurants closed this week, I worried about how it would disrupt the flow and velocity of money. Every potato that is purchased (though not by me this morning) creates jobs along the way from field to market. Those jobs provide income for farmers, pickers, truck drivers, grocery employees, and more. And any disruption along that supply chain can cause a traffic jam in the system.
While food is a necessity, there are many other products that are not. These non-essentials are the things people are not buying at the moment, either because they aren’t available or because we’re all choosing to be extra thrifty. But while it may be admirable, our thriftiness comes at a price. Every item not sold impacts a business owner, as well as their employees, landlord, suppliers, and more, creating a supply chain traffic jam. The result is a “paradox of thrift”—when individual thriftiness creates a drag on the overall economy. By keeping our wallets shut tight, we add to the economic woes of the nation and the world.
Calculate how much cash you have to cover your living expenses for the next 6 months. Cash reserves are especially important if you anticipate a disruption in your income, and emergency funds are designed for black swan events like this one. Even if you have more cash than you need, slow down and think. While it may be tempting to invest your excess cash in today’s bargain market, the reality is that we don’t know how long this pandemic will last, and it’s impossible to predict if and when your loved ones may need your help. We are in one of those rare times when altruism may trump the wisdom of ‘buying low.’ Right now, cash is king, and you or those you love may need it in the months ahead.
Most of our clients benefit from a steady drip of income from interest and dividends on your investments. While the price of shares may drop like a rock, we expect investment income per share to remain steady. If you are already collecting Social Security or other retirement annuity income, that is also a source of reliable monthly income. Look at what is flowing in every month to understand your new financial reality.
It is always scary to watch the market drop, and many of us have never seen a drop as dramatic as what we’ve witnessed over the past two weeks. However, when your portfolio is structured with appropriate diversification and asset allocation, it should do what it was designed to do: provide cash and safety. All of our clients have an appropriate amount of investments in bonds (retirees have enough to meet years of distributions), and bond funds and income ladders are structured to weather volatile markets. Remember the IRAs that you said “weren’t doing so well” at the height of the market and I explained it was due to bonds in the portfolio? This bond strategy may have disappointed you two months ago when market prices were at record highs, but its protective powers are hard at work today. At the same time, the stock portion of your portfolio will be your growth engine when the economy and the stock market eventually and inevitably recover. Successful investors understand the importance of staying diversified and sticking to their plan. Sit tight, and good things will come—eventually.
Once you are sure you have your own needs covered, consider what you can do to help others who may not be as fortunate. If you have a housekeeper that comes every week, offer to pay the normal rate—even though you’re in self-isolation and scrubbing your floors yourself. If you have gardeners, invite them to continue coming as long as they maintain social distance—and to continue to pay them if a shelter-in-place order is issued. If you have a favorite restaurant, order takeout once a week or even buy a gift card to use later—but that provides them with much-needed income now. For me, I plan to keep my April hair appointment (this is a real necessity!), and I’d be willing to pay a premium for her services. Do what you can for others, but only after you take care of your own needs.
Anxieties are running high right now. Most of us are sheltering in place and going out only for essentials. Feeling scared and off balance is to be expected, but there are things you can do to try to maintain some sense of calm amid the storm. If you’re feeling lonely, pick up the phone and call someone. This morning, I saw that my friend Judy had just played Words With Friends with me, so I picked up the phone—at 6 am—and called. I even used FaceTime to spend quality time with my son and grandkid. It’s a whole new me. (If you need a good laugh, listen to comedian Gary Gulman’s talk about his mother’s use of ‘Telephone 1.0’ here.) If you can, get out of the house for a walk, even a short one, to get moving and get some fresh air. Walk in nature. Meditate. Watch a great movie, cook a great meal, or read a great book. (On my list at the moment: Wolf Hall, The Night Watchman, From the Ruins of Empire, and Alice Munro’s Too Much Happiness.) Do something every day that helps you take a deep breath and focus on something other than the coronavirus and the news.
Everywhere we turn right now, our old assumptions and ways of thinking seem to be turned upside down. Just like during an earthquake, all we can do is hang on tight and wait for the shaking to stop. It will take time, but it will stop. I expect that when it does, our priorities as a society will shift. The present has been disrupted, and the future is unknowable, but as an optimist, I believe the best way forward is to work together to build a new and better future.
As we all walk this unexpected path together, know that I am here to help in any way I can, and you can reach me almost anytime. (I’m not going anywhere for a while except to Gelson’s when I am once again out of groceries). We will get through this together. Until we talk again, take care and stay well.
Related: An Equal World Is an Enabled World