You may feel somewhat helpless amongst the tide of unsettling health news and the volatile nature of the financial markets but there may be things you can do to improve your finances, even at this difficult time. Usually taking action helps people feel more in control and lowers their stress. It’s human nature to want to do something in the face of a threat, Following the advice to “do nothing” in the face of scary market news stories is challenging to execute, even if it makes sense.

Focus on controlling the things in your power to control. This is a time to potentially make adjustments and even take advantage of opportunities, that might not be readily apparent. For example, recent market volatility presents some financial and tax planning opportunities.

There’s not much we can do about the volatility of stock and bond markets but consider the following:

  • Ensure we have the right level of risk tolerance in our investments
  • If we thought we had more appetite for risk before and now we feel differently, speak to your financial advisor about portfolio modifications. Often hard times are a good test of how risk tolerant we really are.

Are you insured properly? Might be time for a review

  • Make sure you can meet your obligations in the event of a difficulty, especially illness, disability or death. If you have young children, a mortgage to pay or a family member to support, such as a spouse, make provisions for that.

Are your legal documents up to date?

  • Wills and trusts are essential in the case of death but what about if life and death medical decisions must be made?
    • An advanced health care directive is a must, and often not thought of for young adults whose parents can no longer make decisions for them, 18 and up.

Tax planning opportunities

  • Rebalancing your portfolio will have less of a tax impact when the gain is less
  • Tax-loss harvesting can allow you to sell some positions at a loss, gaining capital losses than can be helpful to counter later gains*
    • *Keep in mind this could lower your cost basis which could potentially give you a higher tax bill to pay in the future, depending on your tax situation
    • *Know also that selling positions and replacing them with others or buying back the same one are governed by tax rules you must comply with or risk losing the tax benefit; you may want to seek professional help or do your research
  • Fix “asset-location” problems that have been impractical from a tax viewpoint
  • Use the once-in-a-lifetime option to transfer funds out of an IRA and into an HSA

Re-run/Run retirement projections

  • Even if you get unpleasant news (such as having to adjust plans you’ve made for retirement and/or current lifestyle), knowing your path has changed (or in some cases, not), and by how much, may help mitigate current stress levels
  • It’s possible your plan will need to be adjusted less than you anticipated
  • If you don’t have a financial plan, it may be time to get one and plan for the future now so you won’t be caught unawares in the next downturn

Adjust your budget as needed

  • While some may have already changed spending habits (in part due to social distancing from usual activities), others may need to make longer-term adjustments
  • While strict (but short-term) spending restrictions might seem like the immediate best option, often smaller (but permanent) cuts can be easier to get used to (and be more effective in the long run)

Make sure you have enough cash on hand to weather the storm.

  • It can be frustrating to sell market positions when they are at a low to meet immediate needs so make sure you have cash for the next year or two, depending on your situation.
  • Older folks or retirees may prefer to keep multiple years of cash/money market on hand.
  • Younger people sometimes keep less but must be aware of risks such as job loss, health issues/disability and more.
  • If you were caught by surprise and don’t have much cash on hand, see below:

Make contingency plans for next-in-line sources of cash

  • Should you deplete your emergency fund, make a plan for the next step
  • Even if such an event may not seem likely, planning for this can provide peace of mind, especially since some of the options (such as using a home as a source of funds or early withdrawal from a retirement account) could take time to put in place
  • Other opportunities include reducing loan payments to lenders making special accommodations for those affected by COVID-19, and taking advantage of government sponsored plans

Don’t give up free money in retirement plans!

  • If you are thinking of reducing 401k contributions, ensure that if your employer matches any part of them, you keep contributing –you don’t want to give up free money

To help alleviate anxiety, try making mid-course adjustments to your plans, staying focused on the bigger picture, creating contingency options, and taking action where you can right now. I hope this can provide you with some peace of mind in these uncertain times. Please contact me if you have questions or want to talk.