The COVID-19 pandemic is unlike any event in the past 100 years. During the process of "flattening the curve," the economy has essentially halted. While homebound, we're left with endless reels of fear-inducing information at our fingertips, causing moments of panic and grief, shock and horror.
It's hard to believe the pandemic and its lasting economic effects will ever be behind us. Yet, in the midst of these emotions, we move forward. Somewhere behind, our anxiety, sadness and fear, our rational mind is sitting patiently, whispering:
"This too shall pass."
It's true. It will pass. But undoubtedly, we'll feel the echoes for years to come.
What you do now to mitigate the financial impact of COVID-19 on your future could be based either in fear and emotion or logic and reason. When it comes to your finances, this is the most important advice I can give: Leave your emotions out.
Game-Planning Your Financial Future
If you're in the 25 to 45 age range, you've hit a rather large speed bump. Time is still your best friend, however, as your money will continue to compound for at least another 20 years. Now is the time to balance your portfolio and continue to feed your 401(k) with 10% to 15% of your income. Your current 401(k) is likely 90% stocks and 10% bonds, with the stocks being your risky assets and the bonds being your "safe" assets. Throwing another 10% into bonds can lessen the volatility, yet because you're taking some risk off of the table, you're taking some returns off as well. Time is on your side. Consistency wins this race.
While retirement thoughts are creeping in for those roughly 45 to 55 years of age, this pandemic likely dropped your 401(k) by 20% to 30%. What does this mean for your future? You should still be saving 10% to 15% of your salary, yet you may be wondering if that's enough. Now is the time to be proactive and figure out what "enough" means for you. Set some goals! A good financial plan will show you how to save more if you need to catch up or let you relax if you're still on track.
A comprehensive financial plan would have prepared those 55 and older for this. If you're in this age range and don't already have one, it's time. Your portfolio should consist of "safe money" as well as money invested in the stock market. Safe money is cash, certificates of deposit and treasuries—dollars that are not going to fluctuate. This is the money you will be spending on living expenses for the first three to seven years of retirement. Your long-term dollars will be invested in the market to garner higher returns, so you can be comfortable for the long haul. An advisor will help you fill your bucket as much, and as quickly, as possible.
There are many things we can't control. Fortunately, when it comes to your money, there's plenty you can do to ensure future success. Use this time to speak with a financial professional and start game-planning your future.
Because I promise you: This too shall pass.
BAIRD DISCLAIMER: These points are not recommendations. While we speak in generalities about investing for your age group, it's important to remember that each person's investment needs, risk tolerance and goals are different. You should contact your professionals to determine which course of action is best for you.
Chris Gervat, an advisor at Baird in Grand Rapids, is part of the Seekell Solberg Boersma group, where five advisors with 100-plus years' combined experience guide families and small businesses in making well-educated decisions through financial and investment planning. Learn more at bairdfinancialadvisor.com/thessbgroup/.
This article originally appeared in the June/July 2020 issue of West Michigan Woman.