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Financial Planning when Faced with Market Uncertainty from COVID-19 Impact

by Robert W. Tull | April 25, 2020 | Financial Planning

Hi, it’s Robert Tull, Tull Financial Group. Seen a lot of social media questions out there about financial planning, about the stock market, about the future, and I thought having been around for about thirty-five years, probably seen a lot over those thirty-five years, I thought, well, why don’t we address some of those questions? I remember last month, my family, we always go on a family vacation out west. We’d been in Montana, and we were on our way back when the news broke about the virus and the stock market just began to fall…plummet, you could even use that word. I handed my phone to my wife and she looked at the market and she says… “Robin, this isn’t your first rodeo”. I realized and said, yeah, that’s true!

I remember 1987, we did not have the Internet back then, but the market fell about 20 percent in one day. I think of 1999 when people were talking about Y2K, when the calendar went from 1999 to 2000 and the markets began to drop.

There was the technology bubble burst. There was 9/11 which affected all of us. I remember how everybody just paused right then, that day, and many of us went to church that night just to pray and to think about the future. Then, you know, there were other things, of course, the 2007-2008 Great Recession and there’s other times beyond these. But that’s what I meant by it’s not my first rodeo. So, when you look at it, you say, how does that affect me?

One thing we always tell our clients is you’ve got to set the allocation of your investments prior to an event, whether it’s a presidential assassination attempt, whether it’s something going on in the Middle East or it’s a virus, set your allocation in advance. You may say, why do you set your allocation in advanced? Because many times I’ll ask my client when they first come in and I’ll say, tell me how much you can see the portfolio go down over 12 months and not fire me?

Then I kind of laugh and I go, no, really, that’s true, because you want to know what your sleep level is when a crisis hits. That’s the first thing. Stocks, bonds, cash. What’s the allocation? Then the second thing is, which you hear a lot, is set aside some cash, you know, three to six months, or for our retired clients we generally set between 12 and 18 months of cash aside so that they don’t have to sell anything.

The money’s available for them to spend it down. So when they call us and say, hey, I need some money, how is this going to affect me? I say, remember the cash we set aside? It’s there for you. So when you look at this, it’s so important to set your allocation and then set the cash aside. If you’re not retired, this is the thing you hear about from financial professionals like Dave Ramsey who talks about setting aside three to six months emergency funds.

I think we’ve gotten away from that. Maybe after this, we begin to move back towards the principle of simply setting aside cash for a short period of time for emergency funds. The other principle I think is important is to constantly remind yourself of your investment disciplines through the crisis. What are those principles like? Last week we had a conference call where we hosted JP Morgan and our clients called in and learned about the principles of long-term investing

I often get the question, why don’t we get out of the market and sit on the sidelines for a little while and then get back in when things settle? Well, the way I look at it, consider this, you have a lifeguard blowing the whistle. Everybody get out of the pool. Everybody get back in the pool. It’s just not feasible. Nobody knows when the right time to get back in. And that’s one of the principles that we were shared with our clients through that J.P. Morgan call.

One important insight we also shared was, if you miss three, four or five of the best days like we’ve been having the last couple of weeks, it really affects the long-term performance of your portfolio. That’s why it is really important that you don’t try to time the market. If I could just summarize real quickly.

  • Set your allocation in advance.
  • Have cash available for a short period of time.
  • Don’t try to time the market.
  • Continually remind yourself of the principles of financial planning that have been with us for so many years.

As always go consult with your financial advisor. If you don’t have one. We’d be happy to speak with you at Tull Financial Group. Have a great day!