The worldwide COVID-19 pandemic is not only a threat to our physical and mental health and national security, but also to our financial well being. According to the Bureau of Labor and Statistics, the current unemployment rate rose to 4.4%, up from 3.5% in February, though some experts believe it will reach double digits by the end of April. In addition, the number of unemployed reached 7.1 million in March.
With financial concerns weighing heavy on the minds of many people, especially those at or near retirement, On the PULSE turned to the professionals for answers and asked Jason Hurwitz, a 3rd-generation Financial Adviser with Kades-Margolis, the big questions.
1. Is my cash safe in the bank?
If your money is in a deposit account such as a checking account, savings account, money market account, or certificate of deposit (CD), then it is protected by insurance provided by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per insured bank, for each account ownership category. If you have accounts at different banks or multiple accounts at the same bank but with different ownership categories, then it’s possible for more than $250,000 to be protected by FDIC insurance, but you should check with your bank if you’re near or over that $250,000 threshold. FDIC insurance does NOT cover investment products such as annuities, life insurance policies, mutual funds, stocks, and bonds. You can find a comprehensive list of financial products that are/are not FDIC-insured on the FDIC website (www.fdic.gov).
2. I’m retired. Where should most of my investments be…cash, bonds, etc..?
I wish there were a “magic bullet” answer to this question, but the genuine answer is, “It depends.” Even during a crisis, everyone’s situation is different, and so recommendations on how to invest money are going to be unique to each person. When I’m helping clients figure out their personal answer to this question, we usually start by asking, “What are your goals? What do you hope to be able to do with your hard-earned money?” The answers to those questions should then drive the decision-making process. For example, an investor who has a short-term need might choose a lower-risk investment while an investor with a longer time horizon may choose to go more aggressive; however, that’s not always the case so shouldn’t be taken as investment advice. At the end of the day, you should choose investments that help you reach your goals in the most appropriate and efficient manner possible. If I want to get home to Montoursville from Williamsport, I’m going to drive because taking an airplane would be ridiculous; however, if I want to get to California before sundown, I’d better get an airplane ticket.
3. I’m retired and am concerned I’ll lose everything. What are my options?
When we’re in a crisis situation, it’s normal to be concerned about losing everything; after all, you’ve worked hard to earn and save your money! While we can’t predict the future and historical outcomes certainly don’t guarantee future performance, we can take some solace in knowing that investment markets have historically been resilient through major epidemics such as the Pneumonic Plague (1994), SARS (2003), and H1N1/Swine Flu (2009) to name just a few (source: First Trust’s “Epidemics and Stock Market Performance”). If you’re truly concerned about your personal situation, though, I’d recommend calling a trusted Financial Adviser for individualized guidance.
4. I’m in my 40’s and am saving for retirement in my 401K. Should I be exploring alternative investments?
Tax-qualified accounts such as 401(k)s, IRAs, 403(b)s, and 457(b)s (and their Roth variations) allow us to invest money toward retirement in a tax-advantaged way, either by deferring the payment of income taxes on contributions and gains until retirement OR by paying the income taxes on contributions now and never having to pay taxes on the gains, if any. As with most financial questions, the decision on whether to save for retirement in a 401(k) or some other investment vehicle is unique to each person, and so you should consult a trusted Financial Adviser for help in making this decision.
5. Should I be moving my investments out of the market?
When we see financial markets dropping and our account values going down, it’s natural to think about pulling our money out of the markets; in fact, research shows that many people do just that. Unfortunately, though, this can turn a bad situation into a disastrous decision because doing so means you’re locking in the downturn rather than giving your investments a chance to recover. It’s also impossible to know when the best time to get back into the markets is going to be. Given all of this, the reality is that moving investments out of a declining market can be a dangerous financial decision. That being said, there are some situations where strategic moves out of the market can make sense, such as harvesting losses to counteract gains. Again, consult a trusted Financial Advisor for guidance in your personal situation.
6. When is the right time to invest in a falling market?
The answer is that timing the market is impossible (if it weren’t, everyone would be super rich). As Warren Buffett famously said, though, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” For guidance in your personal situation, talk with a trusted Financial Advisor.
Jason Hurwitz, MBA, is a 3rd-generation Financial Advisor with Kades-Margolis. He can be reached at (570) 299-3737.