Never Waste a Good Crisis
Key takeaways
- Investors should take advantage of the pandemic period to bolster their chances of meeting long-term financial goals.
- Your financial advisor is uniquely placed to help you weather this crisis or take advantage of it in ways unique to you.
With so many of us Americans working and learning from home during the pandemic, it led us to ask, “How are we doing investing from home?” Here we’ll offer a few pro tips for making the most of this unusual time.
“We see an incredible 42% of the U.S. labor force now working from home full-time,” Stanford economist Nicholas Bloom said in June. That’s up from just 2.5% of workers before the crisis, according to the Bureau of Labor Statistics. Bloom expects the workfrom- home boom to continue once the pandemic is over because of benefits to workers and—for some—higher productivity.
So, this forced trial of working from home seems poised to transform working, at least for those jobs that can be done remotely. A June 2020 study by the University of Chicago estimated 37% of jobs in the U.S. could be done from home. The pandemic, then, could bear the fruit of better working conditions for many—lemonade from lemons, if you will.
How might this apply to you as an investor? We suggest using any newfound time or savings during the pandemic to further your long-term financial goals. Doing so would require taking—or keeping—a long-term mindset when it comes to investing and your financial future. And a key step in this direction is developing—or reminding yourself of—your long-term financial plan with your advisor.
“I think this disruption to our normal lives gives us all a chance to think about what matters most,” said Ryan Murphy, head of decision science at Morningstar Investment Management. “I suspect that, despite the turmoil of this pandemic, many people’s long-term financial goals remain largely unchanged. So the practice of reviewing and affirming them—or even writing them for the first time—could be a powerful way to keep the pandemic in perspective.”
Putting Savings to Work
Another way to take advantage of the pandemic is putting savings to work. Many people have saved more during this crisis. According to the Bureau of Economic Analysis (BEA), Americans saved about 5 times as much in April as before the pandemic, and continue at a rate that’s more than double what it was in early 2020. Sure, government subsidies have helped, but Americans are also spending less, according to the BEA.
If you find yourself in the happy situation of having extra savings at the end of these pandemic months, we encourage you to think about your long-term goals and how your current surplus might help you reach them.
On the other hand, the pandemic has also left many people without employment, affecting their ability to save to meet those long-term goals. For example, 27% have lowered or stopped their retirement contributions, according to a FinanceBuzz survey 1,000 U.S. adults 18 or older on July 11.
It may sound counterintuitive, but being out of work may be a great time to find a financial advisor and start working on a financial plan. Advisors may be able to help with budgeting, taxes, and investing decisions.
Advisors may also be able to help you make better decisions through behavioral coaching. For example, stress can be overwhelming at times like this. The pandemic simultaneously hits on multiple fronts—uncertainty around the health of oneself and family, job insecurity, and economic turmoil. Stress can lead to what psychologists call “attentional narrowing,” or a constricting of focus to what’s right in front of you. “This psychological response makes a lot of sense if you are a prehistoric human and something with fangs lunges at you,” Murphy said. “In modern humans, however, attentional narrowing can make it hard to plan for the distant future as the now becomes so much louder. This natural tendency can undermine how people think about risk and money, and thus short-circuit a long-term investment plan.”
The “fangs” of poor investment decisions can also hurt. Consider making the most of this pandemic by calling your financial advisor and talking about what you can do to improve your chances of reaching your long-term goals. Your advisor and Morningstar® Managed Portfolios are here to help you— not just through the pandemic, but for the long haul.
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