Looking Forward: Lessons from the PandemicChristopher Briggs, RRC®, Wealth Advisor
Amidst the many hardships created by the pandemic, there may be prudent lessons that can assist us in finding greater financial success. As we look to better times to come, here are some reminders:
Don’t Overlook the Merits of an Emergency Fund
The pandemic has been a stark reminder that unexpected events can affect everyone, regardless of income level. Economic shutdowns have affected the income streams of many, highlighting the benefits of having an emergency fund in place. For some high-net-worth individuals, a common notion has been that having enough assets negates the need to have funds set aside for an emergency. But one of the strongest arguments for having an emergency fund is to avoid the need to liquidate investments on short notice, especially since larger daily expenses may need to be covered. For retirees, while emergency savings may not be needed to replace a missed paycheque, they may help support other unanticipated costs, such as health care.
Avoid Emotionally-Driven Investment Decisions
The equity market sell-off in March 2020 and the ensuing rebound reminds us that markets can quickly reverse their course, even during the most challenging of times. This illustrates the difficulty in attempting to time the market — a testament to the importance of staying invested. Not everyone is able to keep calm during a crisis, which is understandable. This is where our role as advisors comes into play — to help provide objectivity and perspective and offer counsel. While it may be difficult to abandon the worry that comes with fluctuating portfolio values, it is important not to let these worries derail you from achieving your ultimate wealth goals.
Reassess Your Current Budget
This is not to admonish anyone about their spending habits, however taking the time to sit down and map out family income and expenses each month can be revealing. More notably, the current pandemic has altered many household spending habits, due to working remotely or lifestyle changes — perhaps you have saved more by not going to the office or gym or traveling for vacation. Reevaluating spending on a periodic basis may uncover opportunities to put more towards retirement savings, which has the potential to pay significant benefits down the road.
Don’t Make Unnecessary Withdrawals
Making early withdrawals from retirement accounts can result in unintended consequences. While the pandemic may have made this temporarily necessary, it is important to have a thoughtful plan for prioritizing sources of potential income during difficult times. Why? Liquidating investments to generate income could result in unanticipated taxes or, in the case of retirees, the loss of income-tested benefits such as Old Age Security. Equally important, careful thought should be given to how to make up for the potential loss of retirement income down the road.