Yes, we are smack dab in the thick of a global pandemic. Many are facing with their health, income, childcare, home school assignments and mental health. I am not going to review the hardships here. Turn on the news, pick up a newspaper or log onto the computer. You will find an avalanche of information on Covid-19 there. Here, I want to make three important points about maintaining and then building wealth, even now, during a pandemic.
Don’t panic with your money during a pandemic.
- Focus on time not timing. We have all heard it since we where knee high to a grass hopper. Buy low and sell high to make money. When the stock market dips, so does our 401k. Our brains scream at us to cut our loses and sell! Instincts are good for allowing people to fool themselves. Your 401k balance is just a number. It is only so much worthless paper until the day you sell it. Only at that point, its value is locked in. Unless you are already wealthy, most 401k investors are investing in retirement plans. And most are not going to retire in the next five years. Why would you lock in your losses rather than wait and continue to invest in your 401k. With market losses and volatility, your investment has more purchasing power as stocks are cheaper. After the crisis is over and stock prices go up, so does your 401k balance. In fact, it compounds its value so that you can make real gains real fast. Franklin Templeton had the following to say about it – Consider that on average, for the 12 months following the end of a bear market, a fully invested stock portfolio had an average total return of 37.1%. However, if an investor missed the first six months of the recovery by holding cash, their return would have been only 7.6%. So, if you can manage it, stay the course or you could miss out on the best gains.
Your pandemic Market losses are probably not as large as you think.
- You are likely diversified. Most of the stock market investments are owned by those who are in the top 10% of wealthy in this country. The rest of us are mostly invested in the stock market through our 401k or other retirement plans. These plans are generally setup with target retirement dates in mind. That means a portion of your portfolio is in nonvolatile investments such as bonds. The closer to retirement you get the more of your money is moved to these safe investments. The result is that your retirement plan is not likely to lose as large a percentage of your value as the market in general. Even in a downturn which will include losses, your losses may not be as large as you fear.
Tracking your net worth is always useful but especially during the pandemic.
- Take measure of your wealth now. I have written about net worth before and I am writing about it now and I will write about it again. Net worth is easy to figure up and allows you to measure your financial progress or lack of progress as the case maybe. Net worth is simply your assets minus your liabilities. Make of list of your assets and their values. For example, the value of your home, vehicles, investments such as 401k retirement plans and savings. Now subtract your liabilities such as mortgage loan principle, student loan and car loan balances, credit card or any other debts owed. This is your net worth. Do not give much thought to where you start. Think about where you want to go. Reviewing your net worth every year is a great tool to track your progress or lack of progress and helps you make good decisions with your money regarding large and small decisions. In other words, assessing your current net worth can you help you decide the next steps for building wealth. Recessions can be very hard on net worth but do not let that get you down. Progress is never in a straight line.
Finally, do not panic. Stay the course as much as you are able and deal with any financial hardships by communicating with creditors and resources. There is help available for you so that you can control what you are able and not let the rest go.
For additional tips on building wealth, check out Money Minute blog: