Financial planning during a global pandemic

The disruption in the U.S. and global economy that has occurred as a result of the Coronavirus has caused a major impact on financial markets worldwide. In the United States, shelter in place orders and social distancing protocols have limited the ability of many businesses to continue operating.

Those businesses that have managed to stay open are noticing a downturn in revenue as consumers are more reluctant to spend their money in a volatile economy. Concerns over job security and how long this pandemic is going to last have people feeling less optimistic about making investments as well.

The financial advisors at Blankinship and Foster are aware of the general anxiety that many of our clients are experiencing regarding investing during uncertain times. Though it’s been more than a century since there was such a large epidemic, we can look back at the effects of the 1918 flu on the economy to try to predict some of the financial trends we will see today. Can history teach us the best approach to financial planning during a pandemic?

Did we learn anything between 1918 and 2020?

There are some distinct similarities and differences between the 1918 and 2020 pandemics. Both viruses were highly contagious and caused significant changes to the economy. The 1918 flu was contained fairly quickly, however, reducing the length of the economic downturn. The vast spread of COVID-19 and lack of adequate testing mean that we’re likely going to experience a longer downturn.

Although economic data on the 1918 pandemic is scarce, we know that service-based businesses suffered severe losses. We do have the advantage of modern technology; models tracking everything from infection rates of the pandemic side to monthly percentage drops or gains in GNP.

The significant global trade expansion in the last century also means that we’re more interconnected with other countries around the world than in the early 2000’s. Our economic recovery is, in part, dependent on their handling of the pandemic.

Risk it or play it safe?

Like the 1918 pandemic and other previous events that have caused a recession, we know the market will right itself over time. However, in the near term, investment markets are likely to stay turbulent. While the steep drop in stock prices have provided some excellent opportunities in the investing market, it may take months or even years for those opportunities to become apparent Many investors have decided its safe investing money today that they won’t need for years. However if their financial situation will require them to draw money from their savings in the short term, it’s best to minimize the investment risk you take with it

Financial Planning in the COVID era

For many who have been economically affected by the response to COIVD, personal financial planning has taken center stage. Families experiencing a sudden drop in income have had to do some serious budgeting and debt management, as well as taking advantage of CARES Act relief programs including extended unemployment, “Paycheck Protection Loans” and tax payment extensions.

Financial planning also means planning for the long term. Families that are not in distress but that have experienced investment losses or a drop in income can take advantage of planning techniques such as tax-loss harvesting, investment re-balancing and Roth IRA Conversions.

As fee-only financial planners in San Diego, we don’t have a vested interest in driving you toward a particular investment. Our financial planning fee structure is based on the amount we invest for you and not which investments you choose, allowing for less conflicts of interest.

Schedule a free consultation at our office in Solana Beach, and we’ll help you navigate through the complicated economic times. Our goal is for you to come out of this pandemic better off than you were when you went into it.

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