It is common to compare market movements to the ebb and flow of the ocean tide (which we are temporarily missing while our beaches remain closed). These are certainly unchartered waters! Please continue reading for ways to help you navigate through the uncertainty.
First, we wanted to provide a brief recap of the market volatility that transpired in Q1. We experienced a market high, a swift sell-off, and a 20% rebound in just 45 days, a tsunami, if you will. Many of us have never experienced a market movement of this magnitude before. Timing the market is impossible. In fact, we experienced several days where trading was suspended because of dislocations in price and substantial trading volume.
At Seaside, we capitalized on the opportunities presented to us by the emotional reactions of investors while keeping our focus on the fundamentals of the wonderful companies that our portfolios are comprised of. With earnings season about to unfold, we will be gauging realistic stock valuations amid uncertainty over corporate earnings due to the pandemic.
If you find that your financial situation has changed quickly due to a job loss, furlough or reduced income, please consider the following strategies to bridge the gap in your cash flow:
- Tap into your emergency fund. This is the reason you have an emergency fund in the first place! There will be an opportunity to rebuild when things turn around. For now, take the stress out of your situation by using the funds that were set aside for this purpose.
- Consider temporarily reducing or suspending the extra payments you make towards your mortgage or other loans to increase your cash flow. Have you reviewed the interest rate that you are paying on your loans? Now may be a good time to consider refinancing.
- If you still find that you are short on cash flow, consider suspending your 401(k) or IRA contributions temporarily.
- Still in the red? A last resort would be tapping into your 401(k). The stimulus bill offers penalty free distributions up to $100,000. You will, however, need to report the distribution as income on your tax return.
Option 3 and 4 will have adverse income tax consequences, so we would recommend these options as a last resort.
- Use this time during quarantine to review your budget, shop your insurance packages and review your subscription services to save money.
- If your cash flow is positive and you are looking for ways to save on taxes, the stimulus bill allows you to suspend your required minimum distributions from your retirement plans in 2020, which will reduce your taxable income and lower your tax bill.
Consider your financial plan as your life raft. Review it and stick to it because it will carry you to where you need to go in these unusual times. Before long, we will all have our toes back in the sand.
Until then, we look forward to connecting with you virtually.