The COVID-19 pandemic has disrupted industries around the world. Worse, it’s disrupted entire economies. Without a doubt, the pandemic has changed the world significantly. Our personal lives, health, businesses, and finances have all been affected by COVID-19. To make matters worse, this is not something anyone planned for! At the beginning of 2020, we certainly did not see this coming. But, change isn’t always a bad thing. There are often silver linings to such drastic changes. We, as a global community, have learned some tough lessons through this challenging time. The COVID-19 pandemic has taught us several lessons when it comes to our finances.
Instability teaches you a lot about your personal financial state. COVID-19 has been full of challenges and many people have had to take a closer look at their financial portfolio.
Many investment management and financial planning firms have been monitoring the financial impact of COVID-19 and communicating these lessons to their clients. These lessons are not only applicable for the economy today, they will also provide lifelong value that can take you through the toughest of times. Firms like Fragrasso Advisors, a team of Pittsburgh financial planners, have helped clients pivot and adjust where they need to, in order to save money and reach their financial goals.
Let’s look at just a few of the financial lessons we’ve learned so far.
- In February of this year, no one would have suspected that in just a month, there would be a massive sell-off and run-up. In March, the entire country went into lockdown and by March 23rd S&P 500 plunged 34% from February 19th, one of the fastest sell-offs in decades! By September 23rd, the S&P 500 rebounded by 50%. This taught everyone that market timing is impossible.
- A pandemic and lockdown threw many off-track. From diet plans to financial plans, a lot of Americans were derailed. The important lesson here is to stick to a financial plan consistently, and if you don’t have one – get one! A good financial plan that stands up against a pandemic must be centered on your financial goals and current circumstances.
- Volatility is always present, and we can’t believe that everything will remain consistent and predictable. The past few years have seen the lowest volatility in equity markets as markets continued to climb. However, investors must realize that volatility does exist, and markets vary daily, monthly, and annually. It’s important to remember that even with S&P 500 intra-year drops of 13.8%, annual returns have been positive for 30 of the previous 40 years.
- There may be an unintended cost with strong bond returns. Given the historical yield on many bond securities, fixed income returns can be limited. Although these bonds act as a diversifier and protect against market volatility, these low yields limit returns.
- Borrowers may now have the opportunity to refinance debts, including mortgages, and can capture lower interest payments, term reduction, or both.
As the pandemic continues, with no clear end date in sight, we continue to learn important financial lessons. With the help of a financial advisor, Americans can stick to their financial plans and pivot when appropriate. Danial Dingus, one of the Pittsburgh financial planners at Fragasso Advisors, said, “If you don’t have a financial plan, take this opportunity to create one based on your goals, risk tolerance, and unique circumstances.” The over-arching lesson here is that you need to be consistent in your approach while still being able to adapt and make rational decisions when the unexpected occurs.
Investment Advice offered by Investment Advisor Representatives through Fragasso Financial Advisors, a registered investment advisor.