Planning vs. Panic

Stephen Chen |
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Finance
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By: Stephen Chen
March 16, 2020

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Fear and Panic vs. Courage and Planning

The last week has been unlike anything that most of us have seen in our lives. We’ve gone from “last year 37,000 Americans died from the common flu…Nothing is shut down, life and the economy go on” to the NBA and NCAA tournament getting suspended, bars & restaurants closed except for take out, companies going to remote work, schools closing and the market enduring 1,000 to 2,000 point swings per day.

It’s amazing how quickly people have gotten the message about the seriousness of the threat the world faces from the novel coronavirus officially known as SARS-CoV-2. Last week I was going to write about the risks of not moving fast enough – now it appears that battle has been fought and largely won (in most areas) – led by private companies and organizations, and now supported by federal, state and local governments.

Despite all the scary headlines there is hope. Our nation is resilient and is populated with creative and hardworking people. “Necessity is the mother of invention” is one of my favorite quotes and we’re starting to see positive stories of innovation from around the world. It’s more important than ever that we think clearly and make rational decisions to achieve a better outcome.

What we face in the near term

The numbers have been run and the analysis has been done based on what we’ve seen so far from this pandemic and previous pandemics like the 1918 Spanish Flu. Basically we face two options in the US:

  1. Italy scenario: our healthcare system gets overwhelmed, the mortality rate is 10 times higher and the whole country is put into lockdown to try to contain the damage. Note: since many more people die the long term economic consequence is much higher due to the loss of human capital.

  2. South Korea scenario: testing is widespread, aggressive steps are taken to limit the spread of the virus and the health care system is not overwhelmed. Note: since there are far fewer deaths the long term economic impact is much lower.

The best tool we have today is education and “social distancing” to try to flatten the curve. You’ve probably already seen this, but this is important so it’s worth hammering home. We all need to work together to minimize the impact to the world.

What to expect if we do flatten the curve

Assuming we do win this first sprint to flatten the curve it’s important to recognize that we likely face subsequent waves of infection from the novel coronavirus as laid out in this article which highlights that flattening the curve won’t end the pandemic.

So even in a better immediate scenario we will be fighting this battle for years to come, but we have demonstrated that we can manage an endemic disease like the flu.

This is not a zero sum game – we will all win or lose together. The US economy is largely a service economy and most public non-essential services businesses are being suspended or facing much lower demand as people engage in social distancing or self quarantine. This can and will quickly ripple through the whole economy. Thankfully it does seem like the government realizes this and is decking up monetary and fiscal initiatives to keep things moving, so that when this crisis passes we can spin things back up more quickly.

We are seeing:

  • Lower interest rates (refinance your mortgage)

  • Quantitative easing (support asset prices)

  • Creative ways to push money into the economy (small business loans)

Create a plan and execute it

Any crisis can lead to panic and panic can lead to bad decisions which have large long term negative impacts. One of the best things you can do is to have a plan and prepare in advance for worst case scenarios like the one we face.

We did a survey in our facebook group about actions people were taking and the top 5 most popular options were:

  1. Taking measures to protect my health – washing hands more, more sleep, vitamins, etc

  2. Not changing my plan (already planned for bad scenarios)

  3. Investing as the market drops to capture a market recovery

  4. Preparing in case I need to self quarantine

  5. Traveling less

Some other suggestions for improving your chances of a better outcome:

  1. Start social distancing now – Improve your health, the health of your family, friends and community.

  2. Support your community – yes plan and prepare, but don’t hoard. Our health care professionals need masks and gloves more than you do. Think of creative ways to support your local businesses by doing things like buying gift certificates to use in the future.

  3. Stay calm – don’t make knee jerk changes to your portfolio. Consider investing if it’s long term money. Talk to a fiduciary financial advisor.

  4. Build an emergency fund – ideally at least 6 months of cash. If you are close to retirement perhaps three to five years of living expenses, so that you’re not forced to sell investments in a downturn.

  5. Be tax smart – some of our users are doing Roth conversion now while asset prices are lower.

  6. Consider refinancing – rates are at historic lows and the government wants people to have money to spend.

  7. Review your expenses – look for ways to bring your costs down.

  8. Review your insurance – life, health and long term care – make sure you have the right coverage.

  9. Have a plan for what to do if someone gets sick – know the symptoms, call the doctor first.

  10. Get your estate plan in order and check in with your family

We know it’s scary – especially for people approaching retirement, but if we stay calm we can get through this with less pain.

This article was written by Stephen Chen from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.

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