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A Practical Guide to Navigating COVID-19 Financially

St. John’s is blessed to have many community leaders in our congregation. One of these is Certified Financial Planner, Phillips Bragg. Phillips is also an Accredited Estate Planner providing financial counsel and guidance for many individuals and organizations. Phillips and his wife Leslie are both deacons in the church serving as leaders in a variety of ministries. As Senior Minister, one of my core callings is to equip the people of God to live as Christ’s Church in the world by being Ministers in Daily Life. During these months of pandemic and physical distancing, I am grateful to Phillips, Jesse Roberts, Janet Jones, Dr. Gary McFarland, and others for offering helpful thoughts to equip us as we seek to be better Ministers in Daily Life.

Dennis W. Foust, Senior Minister, St. John’s Baptist Church

 

A Practical Guide to Navigating COVID-19 Financially

By Phillips Bragg

 

During both the financial crisis of 2008 and 2009 and the current calamity of the COVID-19 pandemic, I have heard more than one friend or client say, “I may not live long enough to see it come back.”  “It” referring to the value of their stock portfolio. With my clients, I wisely resist saying, “So what!? Soon, you’ll be dead, gone, and well beyond caring about the measure of your earthly financial achievements.” However, with the St. John’s audience, I can say that and can add this statement: Thank God your true treasure is in heaven!

When Dennis asked me to write a practical guide to navigating COVID-19 financially, I knew I had to start with what was stated in the paragraph above. Why? Because it speaks to the biggest impediment to rational decision making – the human condition.  Our humanity, our egos, our emotions, our unique personalities – these are the distinguishing characteristics which make us human and enable us to love, laugh with, and forgive one another, as well as commit to doing God’s work and to have faith in the unseen. During trying times, we need to embrace the depth of our emotions.

However, when making financial decisions, it is important to set aside emotions and sharpen our worldly pencils. For, mathematics is what informs the steps we take financially, not fear, greed, or hope.

For Working-Age People:

  • Short-Term Cash:
    • At all times, not just in crisis, strive to maintain 3 to 6 months’ worth of spending in cash accounts (money market, savings, checking).
  • Debt:
    • At times like this, folks wonder if they should throw extra cash at their mortgage. Generally, the answer is no. Now is the time to preserve cash. Pre-payments on a mortgage can’t be retrieved without refinancing. However, it’s almost always wise to pay down a revolving line of credit such as a credit card, because you can always tap into that line if you need to in the future. In the meantime, the interest costs you are not incurring is money you are making. (Earning 1% on savings when paying 10% on a credit card balance is bad math.)
  • Intermediate Needs:
    • Beyond short term reserves, identify intermediate expenses (new tires, that engagement ring, tuition expenses) that are on the measurable horizon (within 18 months or so). Be sure you are planning for these expenses and adding to cash reserves or CDs. For parents, remember that college money needs to get increasingly less risky as your child ages.  After all, these funds are called into service in 4 to 6 huge chunks.
  • Retirement Needs:
    • As in the above points, math should drive your retirement accumulation goal. How much you must save and for how long is determined by the length of your retirement and your lifestyle and, frankly, by whether you plan to leave a financial legacy. Here is an easy formula: divide your planned draw by 4% to arrive at the target lump sum needed to support your lifestyle in retirement plus inflation. Divide by a smaller or larger percentage depending on how long you expect to live and/or whether you are hoping to leave behind a large balance. Keep in mind variables such as lifestyle changes as you age, as well as the potential health care expenses you could incur. There are many free online calculators available, often connected to your employer’s retirement plan, that will tell you how much you must save and for how long.
    • Dollars designated for retirement should be invested more heavily in stocks as opposed to bonds and cash. Assuming you can tolerate the volatility, history tells us your retirement accounts should be 80% to 95% in stocks when you are 25 plus years away from retirement. As you approach the date when you will begin relying on these dollars to replace your paycheck, however, you should begin moving toward an allocation in bonds that is equal to 10 times your planned draw on these accounts.
    • Keep your LinkedIn profile current and advocate for yourself.  As a working person, you are your greatest asset!

 

For Those Beyond Working-Age:

  • Ideally, you have at least 10 years’ worth of spending in bonds and cash. With 20 plus years left to live, you should limit your draw to 4 to 5% of your balance if possible. You don’t have to be a mathematician to appreciate the fact that a 95-year-old could spend 10% of their balance each year without alarming anyone but their heirs, but an 80-year-old should be careful not to draw at that level.
  • Let liquidity requirements, not emotion, drive the question of the stock/bond allocation. I have never understood why folks advocate for seniors owning less stock just because they are seniors. It’s not as if there is a huge cover charge being collected by St. Peter at heaven’s gates. The only reason I can see is the emotional aspect discussed at the top of the article. There might also be a bit of worldly ambition thrown in here. I guess we’d all like to go out “on top,” so we’d like our balance sheets to never look better than on the day we go to meet our reward. There is great irony in these human thoughts that I’d suggest you take up with your Sunday School class.

BUT WHAT ABOUT THIS VOLATILITY!?

  • Trust me, if we knew how to time the market and how to step aside before a big drop and step back in before a big rally, we would be doing it. Instead, history tells us that trying to do this with your retirement capital is a fool’s errand.
  • Re-read the top of this article and recognize that you are feeling fear.  Fear of being the only fool in your supper club that did nothing and “rode the beast/market down into oblivion.”  Or, perhaps you are feeling greedy.  Greedy to buy stocks cheap – to abandon the elegant allocation plan arrived at so logically in the above points.
  • If you are fortunate enough to have “excess capital,” defined as more capital than you need to be in compliance with the math above, then, by all means, act on your fear and/or greed. But, please don’t boast about it to others.  You will only cause others stress or make yourself look the fool when you get it wrong.
  • Otherwise, join the rest of us, resigned in our exposure to the markets because, the world knows that, our earthly treasures can only be stored in a few types of investments (cash, bonds, stocks, real estate), each carrying a certain amount of risk and potential return.  Use the above logic to determine how much you need of each and keep the discipline. 

NONE OF THIS HELPED ME!

Notwithstanding all of the excellent math/logic on display above, we must admit that some of us are more sensitive than others to the angst that the market swings causes.  Some of us cannot sleep and even have panic attacks.  Selling stocks seems like the only thing we can actually do in the face of the pandemic.  You have options.

  • First, you can take a minor action.  For example, you might reduce your allocation to stocks from 70% to 60%, or from 50% to 40%. Getting this wrong is unlikely to crush your retirement dreams if you are wrong, and it might just lift the weight a little because you took action; you did something.
  • Second, you can do something major, reducing your allocation to stocks by half or even more. However, if you do either of these, decide before pulling the trigger what your long-term allocation should be and how you will get back to it. Understand that there will never be a time when it is obvious to re-enter the stock market. The best way to get back in is per a systematic entry plan – $X every other month or something.
  • Before pursuing a strategy like one of these, first try turning off all media except for one or two sources of factual written news for a solid week. In addition, take advice from your pastors around meditation and prayer. You might be surprised what a difference this can make.
  • Finally, help yourself by helping others. Needless to say, a generous heart is a happy heart.  Studies have shown and both Christian and Atheist researchers agree this to be true. Yes, do your math and take care of your own, but know that awareness of the needs of others and using your resources – human and/or financial – is enriching beyond measure.

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 The news is constantly changing on this front.  Stay informed via information from reliable information outlets. 

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