Personal Financial Advice In This Crazy and Uncertain Time

We are currently living in some uncertain and challenging time.

COVID-19 has unleashed a tsunami of health worries and economic pain on this world.

Over the past 2 decades, I’ve experienced a few economically challenging times.

Early on when I started my professional career, I dealt with the bursting of the internet bubble and, shortly after, the 9/11 attack.

The NASDAQ index went up 5 folds in the span of 5 years from 1995 to 2000. Then the bubble burst, falling by over 75% in the period of 2.5 years.

The impact to me was minimal as I was just starting out on my professional journey.

I didn’t have a lot of money invested in the stock market at the time. Therefore, I didn’t have the misfortunate of losing a lot of money.

My job was also stable enough that I didn’t feel that I would be at risk of losing it.

After the bursting of the internet bubble, the market went back up on a tear over the next few years.

But then the Great Recession happened with real estate price collapse. The stock market also went into a tail spin.

Lehman Brothers went out of business in September 2008.

That was a scary time financially. After having worked for about a decade, I have accumulated a sizable financial nut.

I had a lot of money at risk in the stock market. Additionally, I owned real estate.

Unsurprisingly, my stock holdings went down a lot in value. My property  also declined in value.

Surprisingly, I wasn’t too concerned about losing my job in finance back in 2008. My company did well navigating such tough financial circumstances.

However, I was concerned about receiving a low bonus. Working a Wall Street job, a significant portion of total compensation is in the year-end bonus.

Third Economic Disruption In 20 Years

Now the pandemic presents the 3^rd big financial disruption in 2 decades. 

This one is different because a lot of the current economic disruption is due to stay at home orders from the government in order to contain the spread of the coronavirus and for health reasons.

Tens of millions of people lost their jobs.

I am fortunate to still be employed. My investment portfolio has surely taken a hit.

During the pit of the stock market drop in March, I lost over a million dollars on my equity portfolio.

Some tenants have been delinquent in rent, which is perfectly understandable. When 30 million plus people filed for unemployment in the matter of weeks, making rent becomes a struggle.

Hopefully, in the near future, we can defeat COVID-19 and put all the craziness with the pandemic behind us.

But in the meantime, as I reflect on this global pandemic crisis, I have a few thoughts on how to position myself (and you) better for the next financial disruption after this one:

Stay Attentive To The Stock Market

I know how painful checking my stock brokerage accounts can be when the market is so volatile. It is extremely painful when the stock market just recently loss over 30% of its value in the matter of 5 weeks.

While it might be challenging to want to stay connected with what is happening in the stock market, it is also important in this time to know what is going on.

With market volatility, there are opportunities for acquiring stocks at a cheap price. Staying connected to the stock market allows me the ability to jump on those opportunities.

I am a fan of dollar cost averaging into the stock market, in particular the S&P 500 index. I find that I do better on the whole instead of trying my hand on market timing and picking individual stocks.

Dollar cost averaging into the S&P 500 index is still how I invest the bulk of my money into the stock market.

But I still plan to put a small portion of my overall money into buying individual stocks and trying my best to time the market.

That is basically my “play” money used for investing. I am not trying to hit homeruns with that money but, rather, see if I can outperform the S&P 500.

I think it is important to keep track of what is happening in the equity market. If nothing else, I can have a better sense of the impact the coronavirus has on the overall economy.

 Look For Financial Opportunities

The stock market isn’t the only place I can look for opportunities to put my money to work.

There should be many opportunities created from such a big economic disruption.

Commercial real estate comes to mind. Sam, at Financial Samurai, recently wrote a nice post about the different commercial real estate options.

This pandemic should create a lot of opportunities in the commercial real estate space.

I plan to wait a bit longer and see if there are residential buildings I can buy in the 2^nd half of the year at a steep discount.

How about acquiring businesses on the cheap? Given the lock down and stay at home orders, a lot of businesses are suffering.

They still have bills and expenses to pay but little in the form of revenue.

Businesses in retail, restaurants and hospitality space have been hit especially hard. A lot of them might not be able to survive given the fear of people to be in large crowds and where social distancing might be hard.

Therefore, there should be opportunities to acquire such businesses on the cheap.

When the economy recovers and we get this virus behind us, those businesses should do well. And the survivors would have even less competition.

This pandemic also presents potentially new business and product opportunities.

How about creating new cleanliness products or PPE? Maybe you can revamp how people shop for clothes or consume their food at a restaurant.

Coming out of the Great Recession, there were opportunities for great returns. Residential real estate took a massive hit during the Great Recession.

I was fortunate enough to acquire a few properties after the Great Recession. Those properties have appreciated nicely since.

Additionally, I dollar cost averaged into the stock market despite suffering large paper losses in stocks. Those purchases of the S&P 500 index resulted in sizable gains over the past 10 years.

Take Care Of Yourself First If In Survival Mode

In times of great economic disruption, it is necessary to take care of yourself first.

What I mean by that is if you only have enough money for one thing; a choice between paying rent or putting food on the table, choose to put food on the table.

If the choice is between paying rent or building up a little emergency fund to help weather what’s ahead, then delay paying rent and build that emergency fund.

This is probably not what you would expect coming from me, a landlord who owns over 20 rental units.

If you have to choose between the survival of your business or keeping your employees, choose the survival of your business.

You have to take care of yourself first.

Now, if you are financially comfortable, then I have a different take.

But in survival mode, you have to always choose yourself first.

To think about financially helping other people in such an economic situation is a luxury reserve for only those that can afford it.

I think that is pretty common sense.

I have tenants who told me that they are currently unemployed. They have some savings.  But they would not want to dip into their savings for fear of being without money in the future when they need it to feed the family. They don’t know how long their unemployment will last.

The landlord part of me obviously wants to get paid. But at the same time, I cannot fault them for taking such an action.

What they are doing is in line with my belief that you have to take care of yourself first if you are in survival mode.

This is different than people who are gainfully employed but decided to not pay their rent or are on rent strike.

I am vehemently against rent strike for people who have little to no effect from COVID-19 on their financial well-being.

Don’t Depend On Employer

With over 30 million people claiming unemployment, I think it is safe to say that solely depending on an employer for financial well-being is a fool’s errand.

Employers will most likely do what is in their best interest. If that means letting employees go to keep the business afloat, they don’t hesitate.

And once again, who can blame them since they should look out for themselves first while in survival mode.

Companies have also furloughed employees in masses.

I’ve been through 3 major disastrous economic cycles and have seen countless jobs lost.

The internet bubble bursting didn’t only affect internet companies. Other companies were affected too. I know of people graduating around that time who had their job offers rescinded.

The Great Recession wrecked a lot of companies as well. I still remember imagines of people walking out of the Lehman headquarter in mid-town Manhattan for their very last time with boxes in hand full of their personal items at the company.

Now this pandemic wiped out tens of millions of jobs with some of the hardest hit in the retail, hospitality, travel, transportation, and energy sectors.

Over 20 years, tens of millions of jobs were lost due to crazy disruptions.

While history might not repeat itself, it might still rhyme with the future.

Learn from the past 20 years and make sure you don’t just solely depend on your company for money.

Develop Multiple Streams of Income

This builds off the last point of not just depending on your employer for income.

It is wise to build multiple streams of income.

Over the past 15 years, I built a rental real estate portfolio with over 20 rental units.

I am able to diversify my income stream away from just earning a wage while working for my employer.

Additionally, I receive dividend and interest income from my equity and fixed income investment portfolios.

This pandemic really puts my various streams of income to the test.

Fortunately for me, I still feel good about being employed and staying employed. I hope my income from my corporate job will not take a hit although I won’t know until the next bonus cycle which happens in the 1^st quarter of next year for me.

My rental income has taken a hit.

I collect only a fraction of the rent now when compared to the pre-coronavirus days. I hope to hit 80% of collection for this month. There are still some days left in this month so fingers crossed.

I expect my dividend income to take a hit. As this economic lockdown continues, I expect more and more corporations to decrease or furlough dividend payments.

Therefore, even with multiple revenue streams, one can run the risk of financial pain. But at the very least, you stay diversified.

Even with less income coming from each stream, I am still better positioned than if I had all my eggs in one basket.

Also, if you have spent time building up multiple income streams, this pandemic is a good stress case.

If you can survive this current situation financially well, you should be able to survive just about anything.  

Figure Out The Essentials

With the stay at home order, now it is a good time to figure out what the essential spending are.

Just three months ago, back in February, my credit card bills were substantial.

I spent money on eating out, ordering in, vacations, uber rides, gas for when I drive my own vehicle and a host of other money burning activities.

Now with the stay-at-home order, I find that I spend a lot less money. I only spend on necessities such as food, toiletries, and books for my kids.

Gone are the extra expenses from eating out and vacations. Even my dry cleaning bill shrunk to zero because I am in my pajamas for the most part.

In fact, I cancelled a bunch of vacation trips I booked in the early part of the year. I was able to obtain cash refund for some of the trips and company credit back for others.

I was surprised to learn how little I really need to spend to maintain the household. It is less than 50% of my usual bill.

Once the economic opens up again, and we are passed this pandemic crisis, I’m sure my expenses will return to pre-crisis level as we try to get back to a normal state.

But it is re-assuring to know that when push comes to shove, I can greatly reduce my household expenses.

A good goal for anyone looking to build that nest egg is to see if you can continue to stick to your level of expenses now even when things return back to normal.

To the audience: Do you have any thoughts on how we can better position ourselves in such a trying time? Do you have any advice you have received or followed that would be beneficial for our readers to know?  

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SoM @ SportofMoney.com

Many people work hard to better their physical and mental health. What about their financial health?

I started this blog back in 2019 to help people better their financial health as well.

My financial journey began with tens of thousands in student loan debt. Over the span of 20 years, I am close to achieving financial independence.

I truly believe anyone can get to strong financial health. Hopefully, this blog can help you on your financial journey to greater wealth and financial independence.

You can read more about me here.

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