What To Do With Your Finances Now That the Stock Market is in Bear Territory

Updated: April 13, 2020

We are living in an unprecedented time in our history where many people are in a state of distress and panic. With the recent outbreak of the coronavirus disease, known as COVID-19, almost all countries around the world are currently battling this disease.

Almost everything that surrounds us lately has been affected by the virus; school classes, coming to work, planned weddings, booked travels, and even doing mundane tasks such as buying groceries has been disoriented, as we fight the spread of the virus through home quarantine and social distancing.

With all that’s happening, the economy has been one of the things which is severely impacted. The S&P 500 which one of the US Indexes, suffers a huge decline of more than 30% since the start of this year, while the PSEI that tracks the Philippine Index went down close to 50% on the same window.

So, with this kind of market drop, how do you protect your finances?

Just like everyone, my investment portfolio is also experiencing a huge drop in recent weeks because of the effect of COVID-19 in the economy.

I would like to share with you some of the strategies that I am implementing right now and the things that I’m planning to do in the coming days. I will also try to share some tips if in case you’re in a different situation.

Don’t Panic Sell

The very first thing that I am doing right now, is to not sell any of my investments, and I believe you should do too. During this time, treat your investments like your face… DON’T TOUCH IT!

Having a bear market is part of the cycle of the stock market. Treat this period as part of your investing journey. And like every journey everything is temporary.

If you look on a long-term perspective in the market, for example, in 20 years the market has been on an up and down cycle ever since and what is happening right now is not an exception.

Our last experience of a bear market was way back during the financial crisis of 2008 and 2009 and if you look back now the stocks went up and surpassed the peak level before it bottomed during those times.

Of course, only time will tell when the market will bounce back, but selling your investments now will only do you more harm than good to your overall financial plan.

Importance of Emergency Funds

Investing in stocks is not without risk. The reason why stocks have a lot of potential for growth is because it has more volatility compared to other asset classes, like bonds or time deposits. Volatility means the unpredictable up-and-down swings of the market.

To mitigate the volatility concerns of the market, we should make sure that we have an Emergency Fund in place so that during a market downturn like this, we don’t have to dip into our investments for unexpected or unforeseen expenses.

Emergency Funds give you the time to look for a way to cope while in the middle of a crisis. That is why it is highly recommended to set it up before going into investments. Ideally, it should be 3 to 6 months of your expenses.

Right now is not the best time to pull out your investments. But in case you need money for emergencies and no other source of funds, then you have no choice but to realize losses on your investment by selling them.

Understanding Your Expenses

So, what if you do not have an Emergency Fund?

First, once the dust has been settled with the coronavirus epidemic, make it a goal to have an Emergency Fund before investing. I cannot emphasize how important this is by now.

Second, it’s time to look at the things that are in your control, and in terms of your finances… that’s your expenses, especially if you are really in a tight situation.

Personally, while in the middle of this pandemic I went to my Excel sheet where I put my monthly expenses and study which among them are my core expenses and which among them are not.

Core expenses are your essential spending, those are the things that you cannot live without such as your rent/mortgage, food, utilities, transportation expense, etc.

As you all know, we do have different core expenses so there might be cases outside from what I mentioned that are essential to you and your family.

The main point of this exercise is to focus on what you need and remove the fluff, at least for now, while you are trying to stay afloat during this time.

The good thing about this home quarantine is that it prevents you from the temptation to spend needlessly, such as spending on eating out, movie tickets or shopping are eliminated from your expenses so this might give you a wiggle room with your finances.

Being Free From Debt

Having no debt gives you the ability to be in a strong position during times like these. Imagine the amount of stress that you would feel if you have financial obligations that you have to pay on top of your needs. Plus, to add on that, the possibility of losing your job.

Fortunately, I have established this mindset of avoiding any debts that will drag my overall financial flexibility. This also removes me from the temptation to sell my stocks, especially now that the price is depressed. I do, however, have a balance in my credit card, but I pay them off in full every month.

If you have debts and do not have any wiggle room right now on your budget, see if you can reach out to your creditor and ask them for consideration to let you skip a payment for now and if they will be willing to waive any associated fees for doing this.

Of course, this can only happen if you’re the type of borrower who doesn’t miss a payment. If not, ask them what your options are in case you won’t be able to make payments.

A lot of people and businesses have been affected right now, and some are willing to work with their customer to work out a plan to give them some breathing room.

Keep Investing (but only if)

The Stock Market is one of the best ways to grow our money over the long term, and because we’re currently in a bear territory that means company shares are on a depressed price right now.

In other words, they are ON SALE. The lower we buy our share now, the better the opportunity that we will profit when everything goes back to normal.

While we do not know until when this bear market will last, I don’t suggest watching or timing the market every day to buy at the lowest price.

A good strategy I use it to do cost averaging method, this is a method wherein a fixed amount of money is invested at a regular interval of time, usually every month. In this way we eliminate timing the market but at the same time we don’t lose the opportunity to invest more.

However, a word of caution, if you are in a job market that is currently at risk due to the economic impact brought by COVID-19 and there might be a possibility of job layoffs in your company or freelancing work are scarcely available, then I would recommend to stop investing and start preparing for your emergency fund.

This way you are more prepared in case you lose your job or find it hard to look for new clients in the coming days ahead.

But if you are in a more stable situation and have a fully-funded emergency fund, then keep investing and let your money grow in time.
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Reminded Yourself of Your Financial Goals

Every investment that you make should be tied to your financial goals, and it is important especially right now to be reminded about those goals. It will be easier for you to ride out this storm if you keep focusing on why you invested in the first place.

Many times we can be swayed by the media, our friends, or by our emotional fear that we made a wrong decision about choosing our investments when we do not have a specific goal in mind. Our goals shouldn’t be affected by whatever the market is doing.

Our financial goals should be tied within a certain time frame, and goals that are invested in the Stock Market ought to be dedicated to long term goals, like retirement, or anything that is not set to happen within 10 years.

As noted above, the Stock Market is a very volatile instrument so putting money that is intended to be used within a shorter term is not a good fit.

Have a Trusted Source of Information

Most days I try to stay away from consuming too much news as it might just push me to make bad decisions with my investments. Whether that’s the news media or a friend on your social network, sometimes it may invoke emotion that may trigger you to hurt your investment.

What I recommend instead is to read blogs that will help you handle your emotional fears about the market volatility, listen to people that give sound money advice and not based on fears; and then assess what is the best course of action.

One thing that helped me to stay calm and keep a good perspective about this market downturn are the podcasts that I listen to on how to handle this situation, hearing their encouragement helps me avoid to make rush decisions.

I also cut my news consumption to a healthy level so as not to cloud my decision, whether on my money and the way I perform my daily activities.

Avoid Looking At Your Investments

This may sound silly and it may be hard to resist, but over the past weeks that the market went down in value I’ve only looked at my investment once.

This helped me a lot to stay calm and invested during this time, since I don’t see the money I’m losing (on paper), which in turn keeps me from doing bad investment decisions.

This strategy is often true whether spending or investing. Most of the time, we react through emotions that often hurts us financially. We spend on the things we don’t need just because they are on sale, similarly, we might be selling our investment because of the fear of losing more money, just because you see that their value went down significantly.

The way to manage this emotion is to stay away from looking at your investment, as one quote mentioned: “Out of sight, out of mind”.

Final Thoughts

The things that I shared here are mostly the things that we can control because I believe that most of the things that revolve around on how to improve and protect our finances right now are within our control.

We do not know where this pandemic will take us and how it will impact our lives and economy in the future, those are out of our control but how we prepare and react to those external events will minimize its effect on our lives.

So for now, concentrate on making sure you stay safe and healthy, and remember to always wash your hands.

This article is written and contributed by Philip Dayrit. He is a Systems Analyst based in US, and an advocate of Financial Literacy at IMG Wealth Academy.