The valuing of life over economy is not always normal in our society. This year, in response to the COVID-19 pandemic, global governments have willingly chosen to put 150 million people out of work — bringing an abrupt halt to the global financial machine, in favour of life.
The more you know, the more you realize that the long-term effects of this shutdown are unknown.
In order to best protect the economy, the government of Canada has instituted a series of financial stimulus programs. Never before has Canada gone down the path of printing money (via Quantitative Easing) let alone printing money to save its economy during a global pandemic. Between new policy and new values, it is clear today that the more you know, the more you realize that the long-term effects of this shutdown are unknown. We are left pondering:
When will our quarantine end?
Will we need to quarantine again?
Is the government support enough to keep business going?
Will the government support be there the next time?
If the support is not enough, or if it’s not there the next time, how many more jobs are lost?
How many businesses will never make it back?
How will all of this affect my own income and investments in the future?
If I do not know the future, what do I do today?
The uncertainty of the future can be overwhelming so here are the top five financial concepts to consider today:
1. Plan for the worst
The worst-case scenario from this pandemic is falling into a Depression. Depressions bring massive declines in company spending, years of job losses, bankruptcies and struggle. It will affect your industry and your job, even if you don’t see it happening today. We are unlikely to experience a full depression but a shorter-term struggle is very likely. With so much uncertainty we need to ensure we have a plan for the worst. Cash is king in a downturn. We each need to have an emergency fund for 6 months that covers basic expenses. If this is an issue, consider asking your bank to defer your mortgage or credit card payments. The banks are actually here to help.
2. Take the money as a small business
If you run a small business and your revenue has been impacted by the shutdown, look to take advantage of the government programs. Consider applying to your bank for the $40k line of credit or holding your salary in the business while supplementing your income with the personal CERB. Things will not necessarily return to normal once we are out of quarantine. Expect a longer path back to pre-Covid revenue. Access to cash provides security in a world with an uncertain future.
3. There will be great opportunity– but a side hustle is not for now
Jamie Dimon, CEO of JP Morgan has said that a crisis is no time to reinvent yourself. But, out of this crisis will come great opportunity. If you want to explore entrepreneurship, it is a good time to investigate but not to start (unless you have a great way to make money today without spending any money or taking any risk to your current income). Learn from the current environment. If you are planning a new business, avoid the need for large upfront debts and low profit margins.
4. This could be the best time to buy a house in our lifetime
For the first time in our life we may see property prices decrease and mortgage rates at all time lows. The degree of the opportunity depends greatly on the duration of the pandemic. We will explore the opportunity and the effect of future inflation on real estate moving ahead. For now, it is good to know that if you have been saving to buy a house then there could be great opportunity coming. Consider, however, that many banks are asking for 30% deposits.
5. The stock market will go up in the long term
If you have money that you do not need to touch for two years then this is a good time to invest in the market. If you are confident in your investment strategy, make sure to invest in a tranched manner: 20% today, 20% in a few months, and so on. This is not about a quick win or missing the first run. The market may go up or down in the short term as we respond to the virus and its financial effects. It is prudent to spread out your investing during this period of uncertainty. We will expand on investment strategies in future articles.
Tell us what you are interested in most. Are you wondering the risk of your industry or company? Looking into a new business opportunity? Want to know what the property market is doing? Thinking of investing? Leave us a comment or send us a note and we will answer that question for you.