Coronavirus is impacting the global economy in an unprecedented way: If the economy were a bicycle then coronavirus just stuck a stick in its spokes. It’s going to take a while for economies to spin back up to speed, and it hasn’t started back up yet.
Goldman Sachs has revised their Real GDP Growth Forecasts for this year and estimates zero growth for quarter one, a 5% contraction in the second quarter, and only .4% and 1.2% growth in the last two quarters of the year. If those numbers come true, we won’t technically be in a recession but it might as well be one. The stock and bond markets are reacting to those probable futures and that’s why the prices are down and why they may go down more in the near future.
It’s important to keep perspective in times like these. Historically, eventually the bad part ends and economies and markets start recovering. Historically, it’s nearly impossible to know when the “bottom” is. So, knowing that we can’t directly control whether a vaccine is developed, or if companies stay profitable, or whether U.S. GDP and S&P returns start moving back up is anxiety-inducing. We all want to know what we should be doing.
So, what should you do?
Buy low and sell high seems obvious and easy, until you’re in the middle of a panicked time. It does make sense to be greedy when others are fearful and fearful when others are greedy. Well, now is a fearful time. It’s a great time to take some practical steps to improve your personal position.
- Consider refinancing your debt, mortgage rates have dropped radically and now could be a good time to reduce your interest rates.
- Think about increasing your retirement plan contributions. Putting more money to work when prices are low helps increase the chances of gains in the long-term.
- Lower your distributions. It makes sense to take less money out of your investments right now than you may normally be doing, because it’s a crisis moment. Start them back up after this passes.
- Make your annual IRA contributions now, while the market is down.
- Examine the possibility of doing your Roth conversion now rather than at the end of the year.
- If your diversified investments have declined in value sharply already, consider holding on until this passes. Realize that this is systemic: there has been no safe quarter for investors. Even after the financial crisis, values recovered.
Focusing on what you can control is a great way to alleviate some anxieties. Hopefully these actions help!