The COVID-19 pandemic is a global crisis of epic proportions; not even World War II had such a deep impact on so many people.
There is no one anywhere immune (if you’ll forgive the pun) from the effects of this devastating worldwide event. Close on the heels of fears for the health of family and oneself come financial fears. Markets everywhere are reeling, and the U.S. stock market has experienced a shocking decline of more than 30%. With retirement accounts plummeting in value, Americans are deeply afraid that their financial futures have been compromised, perhaps permanently. There is no question about it, this is uncharted territory.
In uncharted territory, when the atmosphere is steeped in catastrophic thinking, there must be a steady hand on the helm. As an advisor, that hand must be yours. Clients are looking to you for a semblance of comfort and guidance on weathering the storm financially. In such an environment, the responsibility to offer reassurance and provide a steadying hand is greater than it has even been. There is much you can do to help. The principle of triage can be applied to financial emergencies.
As the first defensive action, communicating a message that discourages precipitous behavior is essential. In the face of current volatility, clients would be best advised to do nothing. Panicked selling in this environment would be a disastrous course of action, only ensuring that paper losses become permanent and future financial security is compromised. Conversely, there are the more risk-seeking clients who want nothing more than to go on a buying spree, picking up bargains among the carnage. No one can predict how events will unfold, and the wisest course of action is to do nothing. A long-term financial plan is designed with crises in mind, and history shows that the financial markets have weathered a variety of crises over the years by rewarding those investors who exercised discipline and held fast.
But returning to the concept of triage, there are clients whose injuries are such that they can’t blithely follow that advise. Clients who are close to or in retirement face very different concerns. These clients need income now. What course of action can they take?
First of all, clients who don’t already have cash to cover three years of living expenses should look at selling bonds instead of stocks, particularly government bonds. As stock prices and interest rates fall, bond prices rise. Bonds will increase in value. However, now is the not the time to buy government bonds; that’s just locking the barn door after the horse is stolen.
An obvious course of action is to cut spending. Cut it to the bone. On the (sort of) bright side, there’s never been an environment more conducive to cutting spending. All of the temptations that beckon during happy times are no more, at least temporarily. No restaurants, no shopping, no travel – think of the savings!
For clients who are approaching retirement, it might be necessary to rethink retirement dates. Clients who aren’t subject to a mandatory retirement date might consider staying at work for another year. In an environment rife with uncertainty, it’s wise to make no changes unless there’s no way around it.
For any clients, maximizing potential income in the short term is critical. Do you anticipate a tax refund, perchance? Use this unexpected downtime to do your taxes and file as soon as possible. The sooner you file, the sooner you’ll get that tax refund to salt away.
Advisors have a special role to play in the current crisis and a singular opportunity to offer reassurance. The best things to offer any client today are empathy and perspective. By simply listening, you can help allay fears and prevent clients from behaving in ways that will only be to their detriment. Never have clients needed an emotional circuit breaker more.