In just one day, the S&P 500 dropped 9.5% and entered a bear market for the first time since the financial crisis when the Dow endured its biggest one-day percentage drop during the 1987 crash.
The bigger story is that this economic fallout driven by coronavirus fears is likely the tip of the iceberg to what may impact average consumer finances systemically. According to disruptive financial advisor trainer and CEO of Real Intelligence, LLC, Jeff Mount, the fear of recession and a host of other investment challenges have everyone understandably worried.
"People have a lot of scary investment questions they need answered in the wake of COVID-19, but there are sound ways to navigate investments in financial storms," says Mount.
Navigating Investments in Financial Storms
Every consumer is facing uncharted waters as COVID-19 unfolds in real time. On March 11, The World Health Organization (WHO) deemed COVID-19 a pandemic and the president soon after declared the coronavirus a national emergency, which momentarily sent the Dow soaring upward from its historic drop.(2)(3) But bad news keeps coming in the form of estimates showing projected Q1 and Q2 GDP growth cut in half.(4)
The Fed seems to be moving forward on a $1.5-trillion stimulus package to provide temporary paid sick and family medical leave; health, food, and unemployment security; and free coronavirus testing.(5) Just days later, the stock futures dropped 1,000 points.(6) It is clear from such volatility that finding the best approach to money management will hinge on financial planning tactics designed for the average person rather than institutions.
Financial Planning for Real People
Financial markets are waking up to the new reality--but average consumers with 401(k)s, retirement accounts, and investments for everything from homeownership to college tuition aren't finding solace in passive investment management.(7) According to Mount, people should not invest like institutions nor should they judge their investment strategies based on how they performed versus a stock index. "These are the conditions of real people, so people trying to cope with the consequences of the coronavirus from an investment perspective must have the support to build a financial plan that is human-centered--not one that replicates an institutional method," explains Mount.
While a COVID-19-induced recession is a strong possibility, its severity and length still remain in question. (8) There are a number of sound approaches for consumers in terms of financial strategies regarding their investments in the event of a COVID-19 fallout. The uncertainty of when and how the market will bottom out is not the challenge--it is avoiding emotional mistakes as the market swings.
401(k) investors may have COVID-19 financial market fallout fears that spur them to seek out safer assets, but sound actions depend on several factors. The rush to judgement can be noticed in net trading activity in 401(k) saving plans becoming higher during the last week of February than compared to all the combined activity in the fourth quarter of 2019. (9)
In response to COVID-19, the Fed dropped interest rates to near zero. But financial advisors and average investors will need different options geared towards the average person whose concerns and trajectories are worlds away from those of big investors and institutions. (10)
Better Financial Planning Requires Better Tools
Although experienced advisors will be looking at providing solutions that match the needs of different investors based on age and circumstances, it's not always a straightforward or obvious choice. According to Mount, advisors and investors have the capability to make more reliable decisions with the right financial planning tools. If they have an ability to match each asset to its corresponding future liability, they have a better context for advisement, investing, and strategic thinking.
The goal is to lower risk closest to the distribution date for each account depending on its purpose (college tuition funding, wedding planning, retirement planning, etc.) and "aging" the portfolio. This "aging" versus a risk profile-based allocation strategy ensures an investor's required short-term assets are never in jeopardy. In this age of uncertainty with the coronavirus, every consumer and advisor will need financial planning methods that are adaptable to specific needs while adjusting to volatile financial times.
About Real Intelligence, LLC
Real Intelligence, LLC is the brainchild of entrepreneurs and industry experts Jeffrey Mount and Mike Helgesen. With 55 combined years of industry expertise and the alliance of their strategic financial planning methods: Dynamic Mapping and the Essential Family Office--Real Intelligence, LLC is poised to offer a complete essential tool kit to the next generation of elite financial advisors. With strategic, industry-proven training, patented technology, and the ability to introduce middle-class millionaires to exceptional financial advisors, the paradigm of financial services is shifting from status-quo. This human-centered approach to financial planning is a consultant's greatest tool in combatting the competitive threat of free programs through robo-advisers and the dangers of irrelevancy. To learn more, visit http://www.realintelligence360.com
1. Jessica Menton, Nathan Bomey. "Dow endures worst day since 'Black Monday'; S&P 500 enters bear market as coronavirus spreads economic gloom." USA Today, March 12, 2020, usatoday.com/story/money/2020/03/12/dow-plunges-trump-speech-fails-quell-coronavirus-fears/5029964002/
2. "WHO characterizes COVID-19 as a pandemic," WHO 11 March 2020, who.int/emergencies/diseases/novel-coronavirus-2019/events-as-they-happen
3. Derek Hawkins, Miriam Berger, Marisa Iati, Meryl Kornfield, Brittany Shammas. "Trump declares coronavirus outbreak a national emergency." Washington Post, March 13, 2020, washingtonpost.com/world/2020/03/13/coronavirus-latest-news/
4. "COVID-19's Potential Effects In U.S. Public Finance Vary By Sector," S&P Global, March 5, 2020, spglobal.com/ratings/en/research/articles/200305-covid-19-s-potential-effects-in-u-s-public-finance-vary-by-sector-11378013
5. Nick Timiraos, Julia-Ambra Verlaine. "Fed to Inject $1.5 Trillion in Bid to Prevent 'Unusual Disruptions' in Markets," WSJ, March 12, 2020, wsj.com/articles/fed-to-inject-1-5-trillion-in-bid-to-prevent-unusual-disruptions-in-markets-11584033537
6. Fred Imbert. "Stock futures drop -- hit 'limit down' -- even as Fed slashes rates; Dow futures off 1,000 points." CNBC, March 15, 2020, cnbc.com/2020/03/15/traders-await-futures-open-after-fed-cuts-rates-launches-easing-program.html
7. Neil Irwin. "Wall Street Is (Finally) Waking Up to the Damage Coronavirus Could Do."
New York Times, Feb. 25, 2020, nytimes.com/2020/02/25/upshot/coronavirus-wall-street-analysis.html
8. Philipp Carlsson-Szlezak, Martin Reeves, Paul Swartz. "What Coronavirus Could Mean for the Global Economy," Harvard Business Review, March 03, 2020, hbr.org/2020/03/what-coronavirus-could-mean-for-the-global-economy?ab=hero-main-text
9. Lorie Konish. "You might be tempted to move to safer 401(k) assets amid coronavirus market swings. What to know before you shift your money." CNBC, March 6, 2020, cnbc.com/2020/03/05/investors-move-to-safer-401k-assets-amid-coronavirus-market-swings.html
10. Heather Long. "Federal Reserve slashes interest rates to zero as part of wide-ranging emergency intervention." The Washington Post, March 15, 2020, Washingtonpost.com/business/2020/03/15/federal-reserve-slashes-interest-rates-zero-part-wide-ranging-emergency-intervention/