This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not a financial advice; it should not be treated as such.
After a long coronavirus induced hiatus I have come out of hibernation with some financial thoughts you might find useful in the coming years.
Since I last wrote, the stock market tanked, billions of dollars were wiped out in the blink of an eye, unemployment is soaring, mortgage delinquency is rising and the fear of an illness has everyone locked down in their homes. Few ignorant souls protesting the measures enacted to protect them but don't get me started on that.
You might be wondering "what now?" in terms of the economy, unemployment and life as a whole. What is our future going to look like? What should I do? Anyone that claims they know what is going to happen in the future is lying to you. What I do know is life as we knew it has changed. Get used to it for the time being.
The most important thing that you should do right away is think of ways to make yourself indispensable to your employer: what new tricks/abilities can you offer/learn that your coworker cannot. Why is this? Very simple. The most important thing you have right now is your income. Think about it. If you stopped working, would you have any income? Most will answer No. If the time came and they need to fire someone came, guess what, they might fire the guy that does not know how to manage social media or manage a blog.
Have a 6 month emergency fund in cash in the bank or under your bed (hopefully not under the bed) but you get the point.
If you can, keep investing in your 401K on the very least to match what your employer offers. Unless you are in serious financial hardship DO NOT borrow against your 401K or take money from it.
Decrease spending until all has stabilized; the $6 dollar coffee and the $8 dollar avocado toast can wait. Instead, buy food from the supermarket and cook at home. Not only you will be safer, chances are you will also eat healthier.
Credit cards should be paid off and every month, the balance should be zero. If you cannot pay the credit card, then you cannot afford it.
Do NOT miss a student loan payment. There is some help out there, Just research and do your home work. Not the time to be lazy!
Let's say you did all of the above and have some cash to spare, what would I do? I would invest. Yes, you read correctly, Invest. No I am not crazy. At least I do not think so.
You might say "but the stock market just tanked, can it fall further? "The answer is - yes it can. There is something called dollar cost averaging which is what you can do if you are risk averse like me. Dollar cost averaging is when you invest amounts of money periodically, maybe every month or every 3 months, you decide. It might be low when you buy and the next month might be high. However, both will average each other, lessening the risk.
The stock market goes up and down. If you step back and look at 20 years worth of data, you will observe the overall trend is to go up. If you would have invested in March amid the height of the pandemic when the market bottomed out, your investment would have increased by 20-30% today. However, if you invest today and tomorrow the market tanks, yes your investment lost value. But unless you cash it out, you have not lost money. Like the famous billionaire Warren Buffett once said, "Buy when everyone is selling, sell when everyone is buying". Simple yet deep statement if you think about it.
As to where to invest, I have covered this on previous posts please feel free to browse the website.
The forecast is that an economic recovery is expected in the next year or years. How soon will be the debate, but no one has the answer, no matter how eloquent they sound.
Think about it, if you buy in today, you will be buying at close to bargain prices and you will make the most of the recovery.
Too many individuals were scarred after the great depression and did not invest. If your grandparents would have invested a small amount of money during the height of the great depression of 1929, you would have been a millionaire today. Let that sink in.
Till next time,
JL