Fear Not

Jonathan Clements

I DON’T KNOW WHEN the coronavirus will stop spreading, when we’ll have a vaccine and how much the economy will slow. I also don’t know at what level the stock market and interest rates will hit bottom—or whether we’ve already seen the worst. And nobody else does, either. But that doesn’t mean we should all just sit on our (frequently washed) hands.

While we don’t know how bad things will get, we’ve seen this movie before. Do you remember the panic after the Sept. 11 terrorist attacks, with folks buying gas masks, duct tape to seal windows, bottled water and canned goods, and families planning where they’d rendezvous if they couldn’t return to their homes? Do you remember how people hoarded cash in late 2008, because they weren’t sure the banks would reopen, and how many thought we’d see a repeat of the Great Depression of the 1930s?

The coronavirus may be highly contagious. But so, too, is fear.

But should we be so fearful? This time around, we can be reasonably confident that the economic impact will be temporary. Medical researchers are saying we could have a vaccine by next year and they may discover that existing drugs, currently used for other diseases, are effective against the coronavirus. Meanwhile, think about all the cruise ships, airplanes, factories, sports stadiums and office buildings that may sit empty in the months ahead. Guess what? When the coronavirus comes under control and consumer spending revives, all those assets will still be there, ready to be used. The damage to the economy will not be permanent.

What should we do in the meantime? Amid all the uncertainty, here are five steps that could bolster your finances:

1. Don’t wait for good news. If you’re in a mood to buy stocks—which I am—and you want to invest at low prices, you’ll have to buy amid grim headlines. The stock market looks ahead, so this market will bottom long before economic activity revives or a vaccine for the coronavirus is discovered.

And don’t even bother tracking the unemployment rate. That’s a lagging indicator. If we enter a recession, unemployment will rise, and it won’t start coming down until months after both the stock market starts to rebound and economic activity picks up.

Through this decline, buying stocks has felt like tossing dollar bills into a bonfire. But that’s also how it felt 11 years ago, during the 2008-09 stock market collapse. With the exception of the money I invested after Thursday’s 10% plunge, every dollar I’ve invested in stocks this year is underwater. But if stocks keep falling, I’ll keep buying, because I fully expect the market to recover.

How can I be so confident? Ultimately, the stock market is a reflection of the economy. Yes, we will see a pause in economic activity. But soon enough, the world will be back to business. What’s required of investors now is courage, along with diversification, optimism and patience. Embrace those qualities and—in the years ahead—you’ll be handsomely rewarded.

2. Play your final card. It’s the financial advantage none of us is happy about: One day, we will all shuffle off this mortal coil. That could be the key to generating income in today’s virtually no-yield bond world. Yes, I’m once again pitching one of the financial world’s least popular products: immediate-fixed annuities that pay lifetime income.

Over the past three months, the 10-year Treasury note’s yield has dropped from 1.8% to below 1%. But bond yields are only one component in the pricing of immediate annuities. The other key component is life expectancies—and those have barely budged. Result? While the income you’ll earn by buying bonds has been almost halved, the income from an immediate annuity has hardly dropped.

Imagine a couple, both age 70, who stash $100,000 in an immediate annuity that’ll pay income every month until they’re both deceased. Today, that annuity might pay some $460 a month, versus $500 three months ago, according to HumbleDollar contributor Dennis Ho, who runs the website If you need income to supplement whatever you receive from Social Security—and bonds will no longer do the trick—seriously consider an immediate fixed annuity.

Why is the payment on an income annuity so generous? First, each month, the insurance company is effectively returning part of your initial investment to you. Second, the insurer knows that some annuity buyers will die early on, having received little money back from their big annuity investment. These unfortunate folks subsidize the handsome monthly payments that continue flowing to those enjoying a longer life.

Please note that I’m talking here about plain-vanilla immediate fixed annuities. I’m not advocating variable annuities or equity-indexed annuities, which are far less appealing and which insurance salespeople love to peddle, because these products can earn them a hefty sales commission.

3. Prepare for unemployment. The coronavirus will crimp global economic growth, though we don’t yet know how much. Will U.S. employers start making massive layoffs? As a precaution, those in the workforce should ponder how they’d cope with a long period of unemployment.

I tackled this possibility in an article 15 months ago—and my advice today remains the same. What’s the best way to prepare? Your top priority should be making sure you have easy access to cash, and lots of it.

A digression: Many view an inverted yield curve as an almost infallible predictor of recessions. Sure enough, the yield curve inverted in 2019 and it now seems we may get a recession. But this time around, I think we’ll need an asterisk in the record books. An inverted yield curve may predict a recession, but can it really predict a pandemic?

4. Hide that wallet. The surest way to make your portfolio grow—or slow its shrinking—is to save more if you’re still in the workforce and spend less if you’re retired. Indeed, for retirees, varying your spending is one of the most powerful levers at your disposal: You can’t stop the financial markets from falling, but you can limit the other big subtraction, which is the amount you pull from savings each year.

Of course, if we all cut back our spending, it won’t be good for economic growth. But let the policymakers worry about that. You should focus on shoring up your own family’s finances. And, frankly, spending less may prove surprisingly easy in the months ahead. As the coronavirus dissuades all of us from going to restaurants, sporting events and concerts, and from booking trips on airplanes and cruise ships, it should be a breeze to rein in the family budget.

5. Don’t tax yourself. In the category of “things you can control,” don’t forget taxes. In recent weeks, there’s been much talk about harvesting tax losses. The idea is to sell underwater stock positions in your taxable account, so you realize the capital loss for tax purposes, and then immediately reinvest the money in other stock investments, so you maintain your market exposure while sidestepping the wash-sale rule.

But even as you look to save on taxes, also avoid compounding your market losses by realizing big capital gains. Let’s say you have a $100,000 stock fund position that you bought years ago for $40,000. If you sell, you’ll likely have to pay a 15% capital-gains rate on your $60,000 gain, handing you a $9,000 tax bill. Add that to your market losses and you’ll likely find you’re down far more than the broad market averages.

Follow Jonathan on Twitter @ClementsMoney and on Facebook. His most recent articles include Bad NewsDon’t Lose It and Four Questions.

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