Worried about the impact of the coronavirus on your wallet? We don’t blame you. With markets tanking, interest rates plunging, and inflated prices, it can certainly feel like a zombie apocalypse is descending upon the world. While we can’t help you find a store selling toilet paper, we can offer our best financial advice for weathering the storm. Our five financial experts weigh in on how to handle the economic crisis triggered by COVID-19.
Robb Engen: “Reassess Risk and Consider Your Age & Stage”
The economic fallout from COVID-19 has been swift and brutal. Markets are in a freefall and investors are looking for answers. We haven’t seen a market decline this bad since the 2008 financial crisis. Since then, investors have enjoyed nearly uninterrupted gains for the past 10 years. Now what? Here’s my best advice:
Reassess your Risk Tolerance
Everyone has a plan until they get punched in the mouth. The past decade of strong returns has given many investors a false sense of their risk tolerance – straying from the tried-and-true 60/40 balanced portfolio to riskier 80/20 or even 100% equity portfolios.
Bonds help steady the ship during troubling times like these. Investors with a balanced portfolio have the flexibility to sell off some of their bond holdings and buy more stocks to bring their target asset allocation back into line. If you’re 100% invested in equities, you have no such recourse.
A robo advisor can help you choose a portfolio that’s best suited to your risk tolerance and match you with the right portfolio for your needs. For a comprehensive comparison, read our Complete Guide to the Best Robo Advisors in Canada, but Wealthsimple is a good choice for its competitive fees and adjustable risk levels and advice from expert advisers about which risk level is right for you. If that’s not enticing enough, Wealthsimple is offering an exclusive welcome offer for Young and Thrifty readers. Open and fund your first Wealthsimple Invest account with $1,000, and you’ll get a $100 cash bonus deposited into your account. That alone is a reason to sign up!
Consider Your Age and Stage
Young investors in their accumulation years can view these types of corrections as tremendous buying opportunities. Stocks are on sale, and since (hopefully) you’ll be a net purchaser of stocks for the next several decades, now is a great time to put some money to work in the market.
Newly retired or soon-to-be-retired investors likely won’t view this crash in the same lens. Falling stock markets cause serious damage to retirement savings and can significantly impact your ability to retire, or your ability to meet your desired spending in retirement.
If you’re in this stage of life, consider building three savings buckets to protect you from market declines like this:
- Cash: Put one year’s worth of spending in a high interest savings account
- GICs: Put 3-5 years’ worth of spending in a GIC ladder
- Stocks/Bonds: Put the remainder of your retirement savings in a risk-appropriate portfolio of stocks and bonds (preferably in low-cost ETFs). Cut the fees by using a robo advisor like Wealthsimple to build a personalized portfolio for you or by “DIY-ing” your own portfolio with an online brokerage like Questrade or Wealthsimple Trade.
Each year, you’d replace your spending cash with the cash from a maturing GIC. Then you’d replace the GIC by selling bonds, and you’d replace the bonds by selling stocks (but only in years when stocks are up).
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Robb Engen is the co-founder of Boomer & Echo, an award-winning personal finance blog, and a financial expert for The Globe & Mail and The Toronto Star.
Nelson Smith: “Invest Now!”
The most important thing to remember as stock markets meltdown is two little words: don’t panic.
It’s difficult to stay calm when you can see your hard-earned wealth evaporating right before your very eyes. Every instinct is screaming at you to hit the sell button and conserve what wealth you have left. The feeling is even worse when markets fall even further than first expected.
One trick that investors can use to calm down is to take a long-term view of the situation. Yes, the coronavirus will impact a lot of lives in the next few weeks. You or someone you love might even get sick (fingers crossed that it doesn’t happen). But in terms of investing, it won’t matter five years from now, and it’ll be nothing but a footnote in a history book in 50 years. The chances of the pathogen having a long-term impact on your portfolio are virtually nil.
In fact, now is the time to invest. Put whatever cash you can scrounge up to work in stocks today, before the market bounces higher again. I can’t predict the day-to-day gyrations of the market, and neither can anyone else. But I can say with strong confidence stocks will be higher five or ten years from now. That’s why today is the time to invest. Even if you don’t catch the bottom.
On another note, with travel around the globe screeching to a virtual halt, there will be some outstanding airfare and hotel deals for bold travelers. It doesn’t take long to find a bargain, and you can minimize your risk by booking something for the summer or fall. My wife and I did just that – securing tickets to Japan this summer for not much more than it normally costs to fly across Canada. You could even use Aeroplan or Air Miles rewards. If you decide to book, don’t forget to use one of the best travel credit cards and capitalize on any points-earning potential.
Nelson Smith is a Canadian financial expert and founder of the personal finance blog, The Financial Uproar.
Tamar Satov: “Cut Costs & Look for Low Rates”
How—or even whether—the economic fallout of COVID-19 will affect your finances depends on several factors, including your type of employment, level of savings or debt, if you have a variable or fixed rate mortgage, and, assuming you have investments, your asset allocation and time horizon.
First off, if you happen to become sick or need to be quarantined, and you don’t get paid sick time from your employer, you may be eligible to receive employment insurance benefits. (The federal government announced it would be waiving the one-week waiting period in such cases.) If you qualify (self-employed individuals don’t contribute to E.I. and are therefore ineligible) these benefits will keep some money coming in during the period when you cannot work, but it will be less than your usual income (55% of your earnings up to a maximum of $573 a week).
So, before that happens, take a hard look at your expenses and see what you can cut back on and sock away the difference in an emergency fund. Even a small amount of savings can help, or at least delay the need to take on debt. For budgeting, the 50/30/20 budget is effective, but there are also plenty of budgeting apps that can help you create a budget.
If you must borrow money to make ends meet, try to get the lowest interest rate you can. Lines of credit usually offer better rates than most credit cards, but check the fine print. However, if you need fast cash or plan to carry a balance, you could also look at the best low-interest credit cards in Canada or the best balance transfer credit cards in Canada for a quick, temporary solution.
Homeowners who have a variable-rate mortgage will benefit from the recent 0.5% drop in the central bank’s benchmark rate due to fears of the coronavirus, which prompted many lenders to lower their borrowing rates. If you’re on a fixed rate, find out what the penalties would be to break your mortgage contract, and how those fees would compare to the savings of a lower rate.
Tamar Satov is a Canadian finance writer and contributor to MoneySense, The Globe & Mail, Today’s Parent, and Canadian Living.
Chris Muller: “Don’t Sell & Automate Your Investments”
I’ll be honest: for a while I thought the media was blowing the coronavirus way out of proportion. But after seeing the Dow officially drop into a bear market today, my tune is changing. Sure, I can do without the social media posts on people clearing grocery stores out of toilet paper, but it’s wise to think about how to financially deal with this crisis.
First, and most importantly, do not “panic-sell.” It’s easy to look at the drop in the stock market as a sign you should bail and look for safer investments. Bad idea. When people did this during the recession of 2008, they missed out on a massive rebound. I can’t say for sure when the rebound will happen, but I can say with confidence that the market will eventually re-bound. And my gut tells me it’ll be about a year before we see peak levels again.
Instead of panic-selling, you should be looking to do two things:
- Buy more stocks on the cheap
- Supplement (NOT replace) your portfolio with stable assets (like GICs and high-interest savings accounts)
As scary as it sounds, now is one of the best times to invest. Stocks are beaten down on fears of a global pandemic. While there are plenty of other concerns about this (health-wise), you should not fear investing more money. So, my advice is to not stop your contributions – instead, find creative ways to start contributing even more. Your best bet is to automate your investments, which removes the emotion from investing and ensures that you’re making regular contributions to your investment portfolio.
That said, supplement your portfolio with things like GICs and high interest savings accounts. To be clear, you shouldn’t be foregoing additional investments in favour of things like GICs, but if you have extra cash, it might be smart to open a short-term GIC or a high interest savings account with an interest rate above 2%. That will at least guarantee you a positive return (albeit a low one).
Chris Muller is a financial writer and founder of Money Mozart, a personal finance blog.
Jordann Brown: “Forget Toilet Paper — Spend Smartly!”
With COVID-19, a lot of Canadians are suddenly finding themselves cash-strapped. So where should you prioritize your spending right now? Here’s what you should be buying in the era of coronavirus.
For a snapshot of hysteria associated with coronavirus, just take a stroll down the toilet paper aisle of your local grocery store. The empty shelves are a prime marker that Canadians are taking this outbreak seriously, but reams of toilet paper aren’t where you should be spending your hard-earned cash.
First, stock up on non-perishable food items. Preparing your home for coronavirus means being ready to self-quarantine for 14 days if you think you may have been exposed or if you begin experiencing symptoms. Self-quarantine means you can’t leave your home, not even for groceries or to greet your Uber Eats driver, so a 14-day supply of easily accessible food is a good start. You don’t need to only stick to canned goods – since power outages aren’t a concern – so feel free to go for frozen meals as well.
Second, make sure you are well provisioned if you do get sick. That means stocking up on tissues, cold and flu medication, and refilling any prescriptions that might expire while you’re in isolation. You should also make sure you have plenty of hand soap to keep the germs at bay and avoid infection in the first place. Ideally, you’d also purchase hand sanitizer, but stores across Canada are struggling to keep this elusive germ killer in stock. A thrifty alternative is to buy aloe and rubbing alcohol and make your own in bulk. You can purchase a travel-sized squeeze tube to make this homemade solution portable.
Since you’re stocking up on supplies, use a credit card that rewards your spending! For instance, rack up the rewards by using one of the best travel rewards credit cards in Canada. You might not be travelling now, but you can earn some hefty points and save ‘em for a future trip when the virus settles down.
Or use one of the best cash back credit cards in Canada, and earn cash back on every $1 charged to your card. For instance, the Tangerine World Mastercard® offers 2% unlimited cash back on purchases in up to three categories (such as groceries, bill payments, gas or entertainment). The pay-out is monthly and you can even have your cash back rewards automatically deposited into your Tangerine Savings account. Special Offer: Become a new Client and earn 2.10%* interest for the first 5 months on your first Savings Account. Plus, you could earn $150*.
Jordann Brown is a Canadian finance writer and founder of the personal finance blog, My Alternate Life.
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