Covid-19 has arrived, and in dramatic fashion. So I thought I would take a few moments out of my day to write about the situation and hopefully provide some perspective.
I am no medical doctor but from what I understand about 80% of cases are mild. Among the 20% of cases that are moderate to severe they are concentrated in older populations and tend to be the worst when that is combined with other underlying health conditions. What’s the takeaway? Most people will be fine but the Baby Boomers should really stay home and sit this one out.
The economy will respond to the actions we take as a society. To the extent we all stay home, forego traveling, and stop spending money it will affect the economy. It seems apparent at this point that millions of people are changing their behavior to avoid infection and to that end we should anticipate drastic impacts to certain areas of the economy. This is especially bad for services based economies like the U.S. economy which relies so heavily on the services industry. It also is a giant detractor from travel and energy sectors too. The real GDP of most countries this year will probably have negative growth due to this virus and our reaction to it.
You might lose your job this year. In-fact some people are already being let go in the travel and entertainment industry. There are a few things on this topic to keep in mind. One, if you are at or near the top of performance in your field then you should be fine. Work hard and be smart in the work place. Two, make sure you have saved up that emergency fund. These are exactly the sort of circumstances that emergency funds are there for. When a pandemic nobody saw coming results in you getting fired you can always count on that rainy day fund to get you through to the other side. Three, update your resume and get ready just in case. Even if nothing happens it is good to be prepared.
For the past two years I have been preaching to anyone who would listen to me that the market is overvalued. If you needed money in the near-term that you shouldn’t be putting money into the stock market. If you were approaching retirement I almost certainly recommended holding a very large portion of you assets in government bonds.
What should you do about it now that the damage is done? The answer, keep investing. If you have positive cash flow and an emergency fund then this whole crisis just becomes another buying opportunity. We are actually approaching a fair valuation for stock market assets for the first time in years. So, keep working that job, saving the excess, and buying up the American Dream one paycheck at a time.
What About Next Time?
I’m happy you asked. If you find that you are not the one who is calm amidst the panic then it is probably because you weren’t prepared. Allow me to make a few recommendations to help you be prepared for next time.
Read the following books:
- Total Money Makeover by Dave Ramsey
- Rich Dad, Poor Dad by Robert Kiyosaki
- Early Retirement Extreme by Jacob Lundfisker
- The Intelligent Investor by Benjamin Graham and David Dodd
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