Stay calm and wash your hands (February 2020)
I know you’ve been keeping up with the latest news regarding the coronavirus and are aware of how the financial markets are reacting (as of this writing, we are officially in correction territory). You’re not going to find any breaking news here, just a non-emotional reminder that we build financial plans with these times in mind. Just last March, I sent out a monthly musing with these same questions: how prepared are you if the stock market drops significantly? What if our economy or the entire global economy enters a recession? How prepared are you for another full-scale financial crisis? As it turns out, the market recovered all of its 20% loss from December 2018 last year and then some. But what if it didn’t? What if this time it’s different? At Mendham Wealth, we are not in the prediction game, so I am not going to pretend to tell you I know what is going to happen. We have an optimistic outlook on life here, but are also realists. We ascribe to the motto: hope for the best, but be prepared for the worst.
We know the key to financial success is maintaining balance between your Protection, Savings, and Growth components. Sounds simple, but many folks overemphasize the latter component to the detriment of the overall plan. In this type of environment, they either panic or they’ve left themselves with no ability to pivot to a safety net. Either way, their reaction results in major damage (sometimes irreparable) to their plan. When is 4% a good Rate of Return? Or 2%? Or even 0%? When liquidity meets emergency and/or opportunity. This is why we emphasize the basics when building your plan: liquidity, control, safety, and understanding that 'financial risk' means that you can lose money, contrary to what the financial ‘experts’ on TV or in the print media lead you to believe. Our target of 50% of your gross income in cash for emergency seems high to some at first glance. It buys you peace of mind and may even be used for a buying opportunity if things really pull back. Bottom line, we always want you to be in a position of strength, no matter what life throws your way.
So for now, continue to stay calm, stay informed, wash your hands regularly and don’t touch your face (I hear the last two from Monica everyday so I’m sure she’d appreciate me passing this sage advice along). Like I said, back to the basics. And please do not hesitate to reach out should you have any questions or concerns about anything.