Without using the ‘u’ word – because God knows we’ve all heard it enough – we’re certainly living through a generation-defining event. If money and personal finance wasn’t on your mind before, it certainly should be now. Which is why we thought it was high time to solicit some expert advice.
We sat down with award-winning financial adviser and Pivot Wealth‘s former Head of Advice, Ray Jaramis, for six pieces of clear and actionable personal finance advice at a time where clarity is in short supply.
Don’t panic sell your investments (or get caught up trying to anticipate the next event)
First and foremost, you shouldn’t sell your investments for cash. Investing is one of those things where you only ‘realise’ a loss or gain when you sell. If your investments are down and you sell – you don’t get to participate when things go back up. There are countless stories of investors selling in the panic of the global financial crisis (GFC) and having never recovered since.
On a related note, don’t try to be too clever either. Whether or not the world is in a pandemic or it’s simply another one of those mundane weeks that we won’t remember years from now, one thing is for sure – we simply don’t know what markets will do in the short term. I don’t care who you are.
Keep the big picture in mind
There are a lot of unique aspects to this crisis, at least with how it compares to the GFC and the Internet bubble burst before it. Unlike crises of the past, we actually imposed these economic breaks ourselves rather than having it happen for us.
What this implies is with a bit of good fortune – on the other side of the pandemic – we should be able to get back to business much faster than we have in the past. Economically speaking.
It must be said once again that in the short term, there’s never a way of truly understanding the depth or extent of the impact. But the indicators are certainly unique, which bodes well for cautious optimism.
Don’t discount this as a “write-off” year
The idea of writing off the year doesn’t sit well with me at all. And by that I mean you should stick to your financial goals as much a practical or possible. Things might not be going to plan right now – but all that means is it’s time to change the plan. Resilience is a virtue and in any change comes a level of discomfort. Evolution teaches us this is what leads to growth and prosperity.
This is an opportunity to shape up your personal finance
Think about consolidating debts, reining in the spending, and squaring away contingency plans, i.e. income protection, injury & illness insurance, life insurance, etc.
COVID-19 or not, one of the unintended benefits of a global shock to the system is how we as individuals tend to become more introspective (plus the pub isn’t there to distract you anymore). Take a look at where you sit financially – there’s almost always an opportunity to sharpen things up. If you have loved ones around you, then you probably want to make sure you’ve considered how they will be protected if you’re no longer able to work anymore or worse.
Clearly I’m biased here but get advice – insurances are bloody complicated, and it’s easy to get lost in the details without the right guidance. If you can, work with someone who charges a fixed fee rather than earning a commission – it’ll make you better off over the long term.
If you have a mortgage, call the bank right now
I have to put my hand up for the banks here. Yes, they haven’t exactly been portrayed in the most positive light in recent history, especially given the whole Royal Commission business. But I have to admit… I’ve been really impressed by their responsiveness. If you’ve been impacted by COVID-19 and have a mortgage, jump on the phone right now and let them know. It’s not uncommon to get a six-month mortgage repayment holiday to ease the pressure.
Granted, it’s not exactly a freebie. The bank will, of course, add back the holiday into your overall loan so you’ll still be required to pay it back eventually. They’re simply letting you kick the can down the road for a little bit, which can be super helpful in the short term.
Re-think your Big Short fantasy, it might be harder to capitalise than you think
At the end of the day, we’re still turning the pages of the COVID-19 story and it’s impossible to guess where the road will end.
Without a doubt, volatility creates opportunities – but I struggle to think of too many individuals I’ve personally come across in all my years who have been able to meaningfully capitalise on the vagaries of the market (in the short term). Highly resourced fund managers fail to beat the market 80% of the time over five year periods. So if you think you’re up for it, fair play. Though I encourage you not to bet the house on it. Only invest what you’re comfortable with losing. Then you can’t really go wrong.
At times like this, it’s helpful to take a more long term view. Investments should inherently be long term, so we should always take a long term view. Worry about what impact COVID-19 might have on company profits in 2030. All early signs suggest it will probably be minor, in contrast to the human impact. As investors, if we liked shares a few months ago, we should like them even more today (bargain hunt).
BONUS: Bite-Sized COVID-19 Tips
A good personal finance plan should remind you of Ferris Bueller’s professor in high school. Fairly boring, straight to the point, and no one else should be that interested in it. Remember, boring is profitable. So here are my awesome boring tips to stay on top of things in these crazy times:
- Give yourself a break – things are pretty wild right now, so it’s perfectly okay to feel out of sorts. Don’t be hard on yourself.
- Take a long term view – day to day things can feel like a yo-yo, step back and keep a long term view on things. It tends to smooths out the bumps.
- Know your burn rate – a burn rate is what start-ups call their monthly expenses. You should know yours. Think of it as a survival number.
- Know your personal runway – a runway is also borrowed from start-up land. This is the total bank balance divided by burn rate, e.g. $5,000 per month spending, $60,000 in the bank = 12-month runway. Start-ups keep this number in mind to know how long they have to go before it gets tricky. I recommend to my clients all the time – define a comfortable runway and keep this money in cash to one side.
- Understand what you own, take stock of your assets – take a look at the investment material out there talking about passive vs. active investments. Understand where you sit here and jump on the phone if you have questions.
- Beware of the 24-hour news cycle – oh man, my wife and I have pretty much stopped watching the TV now thanks to the 24/7 news cycle. It feels like each station is stretching fives hours of content over each hour of every day. It can really drain you.
- Focus on what you can control – because focusing on anything else makes no sense. Get your financial house in order, make sure your products and investments are tight. Ask questions where you don’t understand and whatever you do… don’t listen to those shock jocks. They don’t know their ass from their mouth, much less anything financial.