Whatever you’re planning to do about your investment portfolio, your IRA or your kids’ college fund right now, don’t. It’s probably stuck in your head, but don’t just do it. Now breathe. Better? Good. While we can’t offer tips on keeping the pandemic from remaining top of mind, we can help you stay clear-headed on the essentials: managing your savings and budgets while building a resilient portfolio.
Table of Contents:
How the Pandemic May Be Impacting the Way You Think About Your Finances (and How to Stop It)
Amid a pandemic and a looming global recession, the impulse to do something, anything, to make the future seem less uncertain will likely lead you to regret. Neuroscience researchers recently found that anxiety (whether born of economic uncertainty or social disruption) can have a debilitating neurological impact on your financial decision-making capabilities.
Fear can make us poor planners and lousy financial thinkers. It’s not that we can’t do the math. Our brains, when overwhelmed by stress, can quickly freeze in fear, causing us to choose whatever looks reasonable at the moment.
Researchers also discovered that subjects experiencing anxiety during a test either avoided risk altogether when making economic decisions or rushed headlong into it, hoping to “get lucky” and avoid recurring loss.
A separate study found that the higher the level of stress or anxiety that we endure before making a decision, the less effort we are willing to put into learning the pros and cons of our financial choices. Regardless of the stakes, our brains are screaming at us to act, as quickly as possible, to re-establish our sense of control. We don’t want to evaluate; we just want something that’s “not this.”
That’s how fear supplants logic, causing us to react rather than assess our options based on the data at hand. It’s not something that any of us can afford to permit when managing our finances.
Why It Matters: A recent study revealed that two-thirds of Americans report feeling anxious, lonely, depressed, or hopeless due to Covid-19’s impact on their lives. Another recent poll by Capital One showed that 58% of us feel that our finances control our lives, and 52% of us have problems controlling anxious thoughts about our financial futures. That means most of us are making financial decisions under enormous pressure, which makes it harder to think clearly.
Here’s What to Do:
- When the world around feels increasingly threatening, and risk seems untenable, it’s important to factor out our “gut feelings” when making financial choices and look squarely at the numbers.
- Step back for a moment. Identify how your fears may be compelling you in a direction that may not be optimal for your long term financial strategy.
- Don’t make decisions when your stress levels are exceptionally high. Avoid decision fatigue (when an endless array of choices and issues numbs your thinking) by breaking down financial decisions into manageable steps, starting with research. Remember, research has shown that the higher our stress levels, the less our brains want to be informed about the economic choices we’re making. It may feel like you’re “going against your gut,” but force yourself to get the facts before making any financial choices.
- Don’t turn worry into a frenzy of activity that will simply leave you with more stress (and unfinished tasks). You could attempt to fix your budget, switch your bank, and update your investment portfolio in one weekend, but you really ought not to. Make your critical tasks doable in short bursts of activity that allow you time to pause, de-stress, and return. Read up on the best checking accounts, then take a break. Review a budget tool and then look for a few ways to save on your grocery bill. Small, achievable goals are less anxiety-inducing than the monumental tasks we might want to tackle.
How the Pandemic Changed Our Financial Planning Options and What You Can Do About It
While the financial landscape has changed dramatically since the pandemic, your financial goals probably haven’t. You still have to plan for retirement and manage your savings and household budget while keeping an eye on your investment portfolio.
The difference now is the sense of urgency that we all feel, the diminished set of viable investment options and the uncertainty of ongoing national economic policy.
If the need to do something, anything, about your financial prospects is gnawing at you, there are several steps that you can do to reclaim control over your financial future. First, let’s clarify the state we’re in by looking at two of the industries hardest hit by the pandemic.
What’s Happening in the Markets
Travel and Hospitality
Tourism and travel-related stocks were severely wounded by the Covid-19 pandemic economic effects. Wounded, but not eradicated.
“About 25% of our hotels worldwide are temporarily closed with 16% of our North American portfolio temporarily closed,” according to Marriott International President and CEO Arne M. Sorenson, who spoke with investors during a recent earnings call. “Europe is mostly shut down with just over three-quarters of our hotels closed right now. To state the obvious, we are operating in a very challenging environment. However, the glimmer of good news is that overall negative trends appear to have bottomed in most regions around the world. The resiliency of demand is evident in the improving trends in Greater China; new bookings continue to pick up with demand, driven primarily by domestic travelers. Throughout Mainland China, leisure demand was strong for the Chinese Labor Day holiday weekend in early May. Occupancy for that weekend was over 45% with resort markets close to 70%.”
What It Means for Investors: When economies open up after rates of new pandemic cases trend flat, some tourism-related stocks experience at least a temporary boost.
While traditionally brick-and-mortar retailers, such as clothing and accessories brands, experienced a nearly 79% reduction in sales in April, retail brands with durable e-commerce components have suffered less.
Companies that offer discounted essential consumer goods, like Costco, which experienced a 7.9% sales boost, fared better than most.
What it Means for Investors: Global e-commerce sales were up 209% in April of this year. Retailers with robust e-commerce and delivery infrastructure experienced tremendous gains. Walmart found a 74% overall boost in sales, and Target reached a 141% spike in digital earnings during the last quarter.
While even strong retail stocks like Lululemon are projected by many analysts to report a downward EPS (Earnings Per Share) for this past quarter, retail companies with solid balance sheets (like Lululemon) are considered to be good options to buy or hold (while some analysts suggest prices should go down a bit more before investing in an “expensive” stock like Lululemon).
While many brick-and-mortar retailers and tourism-based brands such as hoteliers faced cataclysmic losses on top of weak 2019 earnings, they weren’t made irrelevant.
Look for sustained pandemic-recovery indicators and consistent stock values upticks before taking on new investment in impacted sectors.
A recent survey of leading analysts revealed that most suggest that if you are buying in this economy, stick to stocks like Costco, which offer long-term value in times of economic uncertainty and for the post-pandemic economy.
Already have retail or tourism industry stocks? Don’t rush into selling out of panic. If you can afford to hold, do so until the pandemic’s global economic impact (and our government’s response) is clearer.
What We Don’t Know
No one knew or could have known that a pandemic would weaponize human interaction, making our malls, playgrounds, restaurants, and offices minefields of public risk. Not at this magnitude and with such swiftness.
A constant theme through the dozens of recent stockholder’s earnings calls that we reviewed for this story was shock. The marketplace bloodletting–destroying trillions in market value and decimating the automotive, event, retail, travel, and hospitality industries within a few weeks–caught some of the world’s most successful, resilient companies by surprise. Coupled with the tragic loss of human life as nation after nation grieved publicly, CEOs were left with little to hold on to except faith in the market.
“While my senior team and I have weathered economic downturns throughout our careers, the severe toll that COVID-19 has taken on our customers’ lives and on the travel industry has been unlike anything we’ve experienced, and the speed with which it occurred is astounding,” said Hertz CEO Kathy Marinello in a May 12th earnings call. “Yet in just two months, the outbreak of the coronavirus created a major business disruption as global travel demand and the used car market effectively shut down.”
Investors are grappling with forward-looking statements now tainted with implausible questions. Will this company even exist next year? Will the industry as we know it even survive?
Even brands with strong balance sheets and solid contingency plans for a recession found themselves at a loss at how to imagine a recovery.
Although many economists predicted a global recession as early as 2019, top analysts and CEOs alike found themselves facing economic uncertainty, just as consumers were struggling to make ends meet.
Even blue-chip IT brands (traditionally solid performers as they power the transactions for some of the world’s most valuable companies) are reporting a significant impact.
According to Cisco System’s Chairman and CEO Chuck Robbins, who spoke with investors during a recent earnings call, some customers were likely “pausing” non-essential business purchases for several months as no one was prepared to bet on a quick global recovery.
Business services industry leaders, however, like Cisco, tend to maintain steady earnings even in times of social disruption in areas that are critical for supply chain management (like software subscriptions, where Cisco recently saw a 74% boost in sales).
What No One Knows
How long the economic fall-out will last. Most economists project the impact could stretch well into 2021, but those projections do not include the possibility of a second wave of lockdowns due to a spike in Covid-19 cases or the delivery of a federally-approved vaccine.
How soon economic recovery will begin in the US. Our trajectory will be different from China’s, for example, because our economies, number of cases, and economic and public health reporting methods are very different. As unemployment soars and consumer spending trends downward, it’s hard to predict if the stock market’s volatility will continue on a positive trend.
Not Knowing Is Actually OK
The unknown doesn’t have to torment you. If the world’s biggest brands and top analysts can’t see beyond the next few month’s clearly, neither can you. They’ve got the armies of quants with the latest AI and lightening-fast computers tracking every market move and socioeconomic variable by the second, and still, it’s all cloudy. So we, all of us, need to wait. You can’t change that, but you can protect yourself. You can identify value when you see it and limit your risks when appropriate. You can move forward by getting better at acting on what you can know.
Who’s Making Money
Top performing hedge fund Whale Rock Management is putting its money on stocks that support the new work-from-home workforce and cybersecurity. That’s a common-sense move, since about 62% of American workers have reported working from home because of the Covid-19 crisis and cybercrimes are on the rise globally.
Here are a few of the 40 stocks currently still garnering healthy values during the pandemic (as of 5/15/20)
Activision Blizzard Inc. (NASDAQ: ATVI)
- YTD Gain: 20%
Amazon.com Inc. (NASDAQ: AMZN)
- YTD Gain: 27%
Apple Inc. (NASDAQ: AAPL)
- YTD Gain: 7%
Campbell Soup Co. (NYSE: CPB)
- YTD Gain: 6%
Citrix Systems Inc. (NASDAQ: CTXS)
- YTD Gain: 32%
Clorox Co. (NYSE: CLX)
- YTD Gain: 33%
Costco Wholesale Corp.
- YTD Gain: 5%
DocuSign Inc. (NASDAQ: DOCU)
- YTD Gain: 60%
Dollar General Corp. (NYSE: DG)
- YTD Gain: 16%
- YTD Gain: 29%
Domino’s Pizza Inc. (NYSE: DPZ)
Etsy Inc. (NASDAQ: ETSY)
- YTD Gain: 78%
General Mills Inc. (NYSE: GIS)
- YTD Gain: 16%
Hain Celestial Group Inc. (NASDAQ: HAIN)
- YTD Gain: 20%
Microsoft Corp. (NASDAQ: MSFT)
- YTD Gain: 15%
Netflix Inc. (NASDAQ: NFLX)
- YTD Gain: 33%
NortonLifeLock Inc. (NASDAQ: NLOK)
- YTD Gain: 41%
Nvidia Corp. (NASDAQ: NVDA)
- YTD Gain: 30%
PayPal Holdings Inc. (NASDAQ: PYPL)
- YTD Gain: 30%
Peloton Interactive Inc. (NASDAQ: PTON)
- YTD Gain: 62%
Shopify Inc. (NYSE: SHOP)
- YTD Gain: 85%
Slack Technologies Inc. (NYSE: WORK)
- YTD Gain: 37%
Wayfair Inc. (NYSE: W)
- YTD Gain: 100%
Zoom Video Communications Inc. (NASDAQ: ZM)
- YTD Gain: 130%
Stocks that relate to ways we cope with boredom, secure our data, work smarter, and essential consumer goods that are easy to store, did well. Whether your money is in an S&P Index fund or you’re a risk-loving day trader, you’ll want to ensure that your investments are geared towards stocks that take advantage of pandemic-related demand but aren’t wholly dependent on it.
The social investing app Public recently added a Theme called “Stay at Home” that includes a selection of stocks and ETFs that are made more relevant by social distancing. Stocks included Peloton, Zoom, Teladoc, and Chewy.
Historically, America has come roaring back after each economic turndown. That means we should get through the hard stuff eventually, but you’ll need nerves of steel to resist panic when it comes to your money. You’ll come across opportunities to buy low, but you’ll have to be able to judge when those opportunities merit a significant investment.
Right now, your focus should be preparing for America’s recovery (and every bump along the way).
Market Forecasters and Market Makers: Who Knows What and Who Should You Believe?
Markets are ultimately layered systems of individual choices made by people (so mix in whimsy, greed, and confusion), not bloodless algorithms. Sometimes, whole swaths of the market work together to behave predictably, even somewhat logically, with stock values tethered to real-world earnings. Just as often, the world as it is (or as it appears to be) causes societal panic that leeches away whatever rationality the markets held. Then the Dow becomes a rollercoaster of dips and twirls, driven by rumor and investor dread.
According to a recent independent study of market pundits by a consortium of universities, the average Wall Street market forecaster boasted an average accuracy rate of about 48%.
However, about 6% of the market forecasters were right most of the time, according to the study, with an average of 70% or more accurate predictions regarding stock values.
That explains, in part, why the stock market can rally when economists scratch their heads and predict an extended global recession.
Winning at the markets doesn’t require a “secret sauce” or Newtonian genius. Just math, an understanding of history and a stomach for risk. The markets are one place on earth where genius can’t tamp down the wildness of the way things are. In that sense, we can all be Wall Street whiz kids, at least when it comes to avoiding unnecessary loss.
Here’s What We Know (Don’t Get Too Excited)
Despite the fact that many countries are succeeding in flattening the curve, with more than 5 million Covid-19 cases worldwide, uncertainty defines the markets.
According to Standard and Poor’s analytics:
- Growth and economic recovery in Asia, Europe, and the U.S. will be dependent on how well governments manage to control the virus and boost the economy with strong policies.
- Credit may tighten as consumer demand and business income flows suffer from on-going Covid-19 impacts.
- Travel, hospitality, leisure, oil and gas stocks will continue to suffer until the pandemic’s containment is on the horizon.
No one knows for certain how COVID-19 will impact world health and the global financial system during the next few months. Not the POTUS, not the World Health Organization, not the CEOs of the world’s largest companies. Not even Jim Cramer. Right now, when the trajectory of the world’s economy remains unmappable, there’s no legitimate reason for you to venture forth boldly and make life-altering financial decisions until you absolutely must. Not right this minute.
Assess, Build, Control: How to Take Control of Your Finances in a Pandemic
Here are three quick steps to help you get control of your financial prospects.
- Examine the true state of your finances. Don’t bank on income that “might” arrive. Look for opportunities to earn passive income as you cut costs.
- Review your goals. What can be put on the back burner? What will see you through if the economic downturn extends past 2021?
- Hunt down and excise unnecessary expenditures. Keep expenses that help you do your job and manage your household more efficiently. Wellness is a priority too. Factor in the need to maintain self-care routines that bolster your ability to manage stress.
- Create a “self-help” kit of financial data that you can use to fact check your favorite financial gurus. A great source is The Consumer Finance Protection Bureau, a government website with updates on the latest news and lots of handy budget tools. Moody’s, the ratings agency, has a wealth of research on Covid-19’s impact on the global economy.
- Add to your wealth with micro-savings. Even if you can’t cut major expenses, you can reduce costs by just getting a little less of everything and converting that into savings over time. Shaving $3 per day off your weekly food bill translates into $540 in savings in 6 months, enough to cover the average new car payment for a month.
- Connect your savings, checking and budgets to apps that keep you aware of your spending and investment earnings. In times of economic uncertainty, seeing exactly what’s going on with your money can help you stave off financial anxiety by making informed choices. Want a big-picture view of your finances? Get a free account with Personal Capital. Connect your bank, investing and retirement accounts to track your net worth. Personal Capital‘s dashboard is easy to read and gives you a wealth of information. If you’re looking for more of a budgeting tool, we recommend checking out PocketSmith. This app has the ability to project your budget up to 30 years into the future! If saving money is challenging, try Empower. This app has an automatic savings feature–effortlessly save, track your budget, and get recommendations on how to better manage your money.
- Make sure that everyone in your family feels a connection to your joint financial goals. During a period of austerity, it’s essential that the reason behind shared sacrifice is communicated to everyone.
Resist the impulse to panic buy or sell. Take analyst advice with a grain of salt, making financial decisions based on the numbers that you can see, not the ones you’ll hope will appear.
Ready to boost your financial literacy further? Read more at Doughroller.