Changing My Mind

Dennis Friedman

THIS PANDEMIC HAS changed the way we live: Many people are physically distancing themselves, washing their hands more often and wearing a mask when they’re around others. But it’s also changed how I think about money—in six ways:

1. Emergency savings. Before the pandemic, I always thought a cash emergency fund equal to six months’ living expenses would be sufficient. Not anymore. The massive economic shutdown has led to millions of unemployed Americans—and it will take longer than six months for many of these folks to find work again. The implication: Perhaps we need not six months of emergency money, but one to three years of living expenses in a high-yield savings account or a short-term bond fund.

2. Bonds for safety. With yields so low, many people are again questioning bonds’ value as an asset class. Yes, we won’t earn much income from bonds in today’s environment. But their worth is in the safety they offer in difficult times.

We should view purchasing high-quality bonds in the same way we view a homeowner’s insurance policy. Both will protect us from catastrophic events. Just like an insurance policy, the true value of bonds isn’t recognized until a crisis hits. Both the Great Recession and this year’s bear market has shown that U.S. government bonds perform well during economic calamity and can add stability to an investment portfolio.

3. Wall Street isn’t Main Street. During this pandemic, Wall Street-traded large corporations are faring much better than Main Street’s independent small businesses. The S&P 500 is down just 3.6% in 2020 because investors feel big companies will quickly recover. In fact, large firms like Netflix, Amazon and Clorox are experiencing rising sales during the pandemic.

Meanwhile, there are thousands of small businesses in survival mode. They don’t have the financial resources of large corporations to see them through this crisis. Karen Harned, executive director of the National Federation of Independent Business, told NBC News, “After the [2008-09] financial crisis, we lost 1.8 million small business owners. After the reaction I’m hearing, I’m worried about what that number might be after this is over.”

How can you and I help? We should support our local independent businesses by directing more of our dollars to our favorite restaurants and stores. Our money not only helps struggling businesses, but also adds much needed tax revenue for our local government.

4. Compounding’s importance. I was sitting at home one evening watching the news. The show’s anchor was interviewing a public health official about COVID-19 and what could have been done to prevent more deaths. The epidemiologist thought that if we had implemented the stay-at-home order one week earlier, we could have saved thousands of lives. His key point: It isn’t just what we do that matters, but also when we do it.

Isn’t that concept also true of money? The earlier we start saving, the larger those dollars will grow and the less we need to sock away over time to meet our financial goals, all thanks to the wonders of compounding.

5. Money can buy more than just stuff. During the pandemic, I found a buyer for my condo. It took almost three months because of California’s stay-at-home order. The sale was going smoothly until the unit was inspected. The buyer wanted an additional $2,500 for repairs. My real estate agent and I estimated the repairs would cost just $500. I felt the buyer was trying to renegotiate the price, thinking I was desperate to make a deal.

I might have buckled under—if I didn’t have substantial savings to see me through this financial crisis. But instead, I stood my ground and ended up paying just the $500 or so. This wasn’t just about the money. It was important to me to stand up for what I thought was right. That’s what money can buy you, and you don’t have to be Warren Buffett: An adequate savings account will often do the trick.

6. A lesson from Ozark. I admit it, like many others, I’ve been watching more television during the pandemic. I got hooked on the Netflix show Ozark. What I find so fascinating is the calm demeanor of the lead character, Marty Byrde. He’s a financial advisor who launders money for the Mexican drug cartel, and finds himself in harrowing situations that threaten him and his family.

But the guy is relatively calm under intense pressure and doesn’t make emotional decisions. There’s always a rationale behind his actions. Although Marty is a criminal, he reminds me that I should keep my emotions in check while dealing with this health and financial crisis. These are difficult times—and they challenge all of us to act in a thoughtful way.

Dennis Friedman retired from Boeing Satellite Systems after a 30-year career in manufacturing. Born in Ohio, Dennis is a California transplant with a bachelor’s degree in history and an MBA. A self-described “humble investor,” he likes reading historical novels and about personal finance. His previous articles include Error of My WaysAnybody’s Guess and Don’t Count on Me. Follow Dennis on Twitter @DMFrie.

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