(Did you miss the podcast episode that goes with this? If so, I've got it for you right here!)
The Coronavirus can’t be ignored.
Schools have been temporarily closed, a lot of people are out of work due to business slowdowns or shutdowns and social events have been canceled. That was just the start--in some areas, people are being directed to “shelter in place."
We’ve never experienced anything like this before. As individuals, there are things to consider. However, as an educator, there are some topics that need special consideration.
Now is not the time to ignore the reality of what’s going on in our world. That’s why I wanted to write this blog and go through the topics that most concern educators.
Let’s see what they are.
The Stock Market
It’s going nuts.
It’s no secret that the stock market is volatile right now. Along with the growing body of information surrounding coronavirus, it’s one of the major headlines. It’s normal to be concerned about what’s happening to the economy and especially your money (i.e. your financial future).
I'm not going to ask you to ignore the news. I'm not going to ask you to ignore the fact that you’re probably losing money right now.
However, I am asking you to take a deep breath and to avoid reacting while you’re in a state of panic. It’s never a good thing to make financial decisions when you’re acting on sheer emotion. A knee-jerk reaction could have a forever effect on your money.
Now is the time to take a step back, gather information, and discuss your options.
I’m speaking through direct experience, from what I saw in 2008. I can't guarantee what is going to happen. No, because nobody can.
There are several reasons the stock market is taking a beating. Let's talk about them.
The first is that supply chains for companies may be slower or cut off completely.
The United States imports goods from a lot of other countries. One of those countries is China. An example is that they may not be exporting their usual amount of cargo or the U.S. might not be accepting it.
The second is the postponing of big events.
That means the public is not spending money on tickets, parking, and food. That will affect companies and vendors, which in turn affects the stock markets.
Overall spending has slowed down. For example, my husband called me from the grocery store. It was such a madhouse that he left. There's panic spending in some areas, but people aren't spending on other things.
The third reason is fear.
When the stock market declines, people just naturally jump ship, which creates an even further decline in the stock market. It’s a nasty cycle that brings the stock market down.
We are proactive when planning with our clients by including large drops in their planning scenarios.
Now, let’s give you some language to work with.
Tripping The Circuit Breaker
If you’ve been listening to the news, you’ve probably heard the term circuit breakers. That can be a scary term because it reminds us of when the electricity goes out. It brings to mind losing something out of our control.
However, in this case, the circuit breaker is in place to protect the stock market!
In approximately 1987, the Dow Jones Industrial Average dropped 22.6% in one day, which was the largest at that point in history.
Circuit breakers are in place so that when panic selling happens the stock market can shut things down. That gives investors a chance to breathe before actually making changes. It stems from the flow of trade orders.
The process has been refined over the years and circuit breakers have different levels on the New York Stock Exchange.
If there's a 7% decline in the S&P 500, then they halt trading for 15 minutes
If there's a 13% decline in the S&P 500, then they halt trading for 15 minutes
If there's a 20% decline in the S&P 500, then trading stops for the day
May 9th, 2020 was the first time they hit the first threshold since the system was revamped in May of 2010.
Keep in mind that circuit breakers are there for protection.
Hitting The Bottom
The S&P 500, NASDAQ, and Dow Jones are the main markets that most people follow to just get some reference points about how the stock market is doing on a general scale.
Well, on March 9, 2009, they bottomed out, causing the Great Recession. I want to compare what the markets look like now against what they looked like during 2009.
On March 6, 2020:
The Dow Jones was at $25,864, compared to 2009, when it was only $6,547
The NASDAQ was at $8,575 compared to 2009, when it was only $1,268
The S&P 500 was at $2,972, compared to 2009, when it was only $676
Even with these drops, we're still way further ahead than we were during the worst day of the Great Recession.
We’re going to talk about some blanket stuff.
The first thing is to have an overall plan. A plan will let you know how this stock market volatility affects you. If you don't have a plan or know how much you need, you could be worrying needlessly.
If you haven't even looked at your accounts for a long time, it’s time to look, because if you are not diversified, then this might be affecting you a little bit more than if you weren't.
If you're saving money each month, such as putting money into your 457 or 403b, then keep putting it into the account. You're taking advantage of what we call dollar-cost averaging.
That means you're buying at different levels of the stock market, which will average out.
Annuities and Insurance
This is a big topic for people in education.
You know those lunches you’re invited to join? The ones where you’re pitched a lot of annuity and insurance products that come with “guarantees”?
There will be lots of emails, calls, and lunches from someone trying to talk to you about “protecting” your money.
Most of the time it will be some type of annuity or insurance product of some kind. I’ve worked with educators and people in your position. I have witnessed these events over and over again. It means that you could be locking in a forever loss.
The pitch will sound convincing. It's gonna sound like the best thing since sliced bread. I'm asking you to ignore these pitches.
Without a plan, you don't really know what is good for you. Just say “no”! If you have questions or need insurance, then reach out to a fee-only planner, somebody who is a true financial fiduciary.
It’s by an oath that they give you unbiased advice that benefits you!
Let us know how you plan to weather Covid-19 and the resulting stock market fluctuations.
Leave a comment below.