As you may have heard, the world is in the throes of a new, as-yet-untreatable, easily-communicable, fairly-deadly virus. I’m not going to tell you to wash your hands, stay home, maintain physical distance, etc. You already know that, unless you’re a dedicated OANN viewer. Instead, I want to share a few suggestions about how I’m thinking about the pandemic from a personal finance point of view.
Don’t rush to buy
I am what you might call an indiscriminate buyer of stocks: I contribute to my IRA every week, on the same day (it’s Wednesday, if you must know), and receive that day’s price. When the market is overvalued and doomed to decades of sub-par returns, I buy. When the market is undervalued and prepared for a huge run-up, I buy. In every market cycle, there will be times when the absolute peak falls on a Wednesday, and I get screwed. In every market cycle, there will be times when the absolute bottom falls on a Wednesday, and I look like some kind of genius. On average, over the next 40 years, I figure my returns will look like the market’s: I’ll get my share of the profits of publicly traded companies. Definitely no more, but hopefully not too much less.
The markets have fallen a lot in the last few weeks — stocks are on sale! But if I max out my IRA contribution today, and the markets fall another 80% by the end of the year, I’ll have missed out on 9 months of lows. So, I’ll just keep plugging along.
That being said, if you have a well-diversified, long-term target asset allocation, it’s definitely out of whack by now. All but your safest, shortest-term bond funds have likely fallen somewhat, while your stocks have been gutted. That means it might be time to take a look at your portfolio and rebalance your holdings. But remember, you’re not trying to “buy low,” you’re trying to bring your actual asset allocation in line with your target asset allocation.
This is true even if both your stock and bond funds have lost value: a 60/40 stock/bond portfolio where the stocks have lost 35% and the bonds have lost 10% is now a 52/48 portfolio. That’s not your target allocation, so it makes sense to rebalance back towards stocks. You can think of this as “buying low” if you absolutely must, but that’s not the point: the point is to bring the actual risk exposure of your portfolio back in line with your target risk exposure.
If you kept your job (or at least your income)
If you have a job that has to be done during during the crisis, are able to telework, or work for an employer that has been bullied into paying employees while they’re stuck at home, congratulations! The good news is, as you’ve no doubt already noticed, you’re spending a lot less money. You’re saving money on commuting costs, putting less wear and tear on your clothes and vehicles, and shopping, eating and drinking out less (takeout and delivery only, please!).
There is some hope that in the emergency bill forthcoming from Congress we may see unconditional cash transfers to some, if not all, adults and children; the most prominent current suggestions are in the range of $600 to $2,000 per adult. The most ambitious proposal, from Rashida Tlaib, includes recurring $1,000 monthly transfers until the crisis is past.
The first, most obvious suggestion in these conditions is to build up a cash cushion, if you don’t have one already. You may have dodged the first bullet, but that’s no excuse to tempt fate. You may know, in the abstract, you need 6 months of living expenses in safe, liquid assets. But think about what that means: what are you going to use to pay your bills if you don’t have any income until November 1? If you don’t have an emergency fund already, your first priority should be using the money you’re saving to build up that fund. I’d suggest a high-interest rewards checking account, but I’m already a broken record on that front. Keep it under your mattress if you insist, just keep it.
Second, support local businesses. I promise you that Amazon, Walmart, Target, and CostCo will still be around in a year. It’s not clear that many local restaurants and retailers will be. I’m not suggesting you splurge, and I’m not suggesting you buy gift cards you’ll never use as some weird kind of charity (depending on the gift card issuer, the store may not even receive the cash until the card is redeemed). I’m just saying, if you like your local Thai restaurant, see if they’re still offering pickup or delivery, and eat some Thai food. If you like your local bookstore, see if they’ll deliver or arrange special social distancing hours like Capitol Hill Books here in DC.
Third, consider taking out a low-interest or no-interest loan as a supplementary emergency fund. As the economic crisis unfolds, there’s going to be a credit crunch, which means the right time to take out a loan is before you need it (and while you still have verifiable income). Lots of credit cards offer 12-15 month 0% introductory rates (I personally like the Chase Slate for this purpose), and home equity lines of credit can still be obtained with very favorable rates. With rock-bottom Federal Reserve targets, interest rates themselves are unlikely to increase, but underwriting standards will grow more and more strict until the credit markets seize up completely. It’s better to take out a 0% APR loan you don’t need now than a 25% APR loan when you do.
If you lost your job
Whether you’re “furloughed,” “laid off,” “fired” or “made redundant,” losing your job sucks, plain and simple. If you lose your job in the face of this crisis, you need to very quickly evaluate your options.
The most important, basic assumption is that you’re going to be unemployed for at least 6 months. Even in a healthy economy, there’s plenty of job turnover: dental hygienists move from one practice to another for better pay, hours or benefits. Construction workers have a few weeks off after one job ends and another starts. Adjunct professors may or may not pick up a class or two between Spring and Fall semesters.
This isn’t like that. If you are newly unemployed, plan on being unemployed for a while.
File for unemployment insurance benefits immediately. Our unemployment insurance system is designed to be deliberately slow, on the assumption that most laid-off workers will receive one or two more paychecks (for the last few weeks they worked), and most unemployed people will be rehired within a few weeks. That means you need to file for unemployment insurance immediately. You still won’t receive your first check for 2-4 weeks, but the sooner you set the process in motion, the sooner you’ll receive your benefits and be able to develop a plan.
Apply for Medicaid immediately. If you have an ACA marketplace plan, or employer-based insurance, you should apply for Medicaid the second you know you’re being laid off. Medicaid is premium-free health insurance with no deductibles and no co-pays; it’s the insurance all Americans deserve. Fortunately, once you apply you’re usually eligible for retroactive coverage, but applying and qualifying can be tricky, and the sooner you start the process the sooner you’re likely to complete it. So-called “COBRA” coverage is often suggested as a stop-gap measure, because of its optionality: if you use your COBRA coverage during the period after unemployment, you can pay for retroactive coverage; if you don’t, you don’t have to pay. Under the present circumstances, this stratagem is absurd: apply for Medicaid immediately.
Apply for SNAP immediately. The Supplemental Nutritional Assistance Program is the most comprehensive welfare program remaining in the United States — but the requirements are even more onerous than for Medicaid, and you may need to submit documents multiple times before your state or territory accepts them. Once you’re approved, you’ll receive a debit-style card that can be used to pay for unprepared food at most grocery and convenience stores.
Conclusion: figure out what you owe to whom
So far, so good, right? Lots of paperwork to fill out, but you’ve got lots of free time, and most of the documents can be filled out online. Now we need to talk about the serious stuff.
If you’re a singer, or a dancer, or an orchestra performer on Broadway, you’re not going back to work anytime soon. But if you’re a singer, dancer, or orchestra performer on Broadway, you’re also probably renting an apartment somewhere in the greater New York metropolitan area you can’t afford anymore. You do not owe your landlord rent you cannot afford to pay.
I want to be as clear as possible: the problem is real. The problem is your newly-limited financial resources. The solution cannot be paying the people who harass you the most at odd hours, or the people who have the most control over your credit report, or the people who threaten to shut off your water, or electricity, or internet, or phone service.
You have real obligations to real people: if you have roommates, they might not be able to cover your share of the rent if you bail. But you also have obligations to yourself, your friends, and your family. And as the crisis progresses, the tradeoffs between those obligations are going to require a real moral sensibility.
I’m not here to tell you which obligations, to whom, should command your newly-limited resources. That’s a question you need to answer for yourself. But I am here to tell you that your new job is to figure out what your moral sensibilities are, so you can fulfill as many of the obligations that matter to you, whether that’s to your family, your friends, your roommates, your landlord, or your bank.