My thoughts on Coronavirus and how it affects our investments, real estate, and life…
It seems like investments and real estate IS my life!
I have to admit.
I’m one of the people who thought this crazy thing was limited to Asia, and maybe a few tourist destinations.
There were a lot of people in agreement with me who kept asking what all the hype was.
Well, that hype somehow became reality, at least for the time being.
I tried to fly to Boston yesterday to participate in a real estate event I was asked to speak at.
The event got cancelled as I arrived in a DC airport.
I bought a return ticket same day back to Alabama, realizing this virus was having a significant effect in my life.
In all of our lives.
Here’s a list of things I think are smart to consider for life in this period of extreme uncertainty with Coronavirus (COVID-19).
1. Don’t Sell
I recently got a comment on this blog asking for advice on what to do with an investment portfolio. They had already sold it all into bonds and treasuries, and asked what their next move should be.
My answer was, don’t sell it into treasuries and bonds!
I’ve been watching the stock market my whole life. I’ve made a hobby of watching the markets carefully.
There have been recessions, or large economic downturns, several times since I was old enough to understand money.
In the early 80’s, early 90’s, early 2000’s, and 2008.
It’s part of the natural cycle of growth.
Growth is amazingly great for a long period of time, then you need a recession to bring the market back to reality.
For many people reading, all they see if their balances quickly decreasing, and their life savings disappearing before their eyes.
I got news for you. It hasn’t disappeared yet. You don’t actually realize that loss UNLESS YOU SELL.
If you think you will sell at the right time during the drop, and buy back in at the right time during the rally, you are very likely wrong.
It’s more likely you will come out in a worse position than not touching your accounts at all during the volatility.
Another reason for this is the great days come as quickly as the bad days. March 13, 2020, yesterday from this writing, was a jump of 2000 points or 10% in the market. You don’t want to be out of the market on those days.
So don’t sell.
See my post on Why Timing the Market is a Bad Idea
2. Have a Long-Term Perspective
I picked a hell of a time to retire.
I’m retiring in 5 months, and I’m watching all this money disappear from my accounts.
And I Could Care Less.
Yes, I’m retiring, but I have no plans to touch my investment money for at least 15 more years.
That’s when I’ll be eligible for withdrawing from retirement accounts penalty free and tax-advantaged.
Caveat: If there is money you have invested in the market that you need soon, then it shouldn’t be invested aggressively. You should have enough bonds mixed in to keep the volatility from wiping out your nest egg in situations like we are starting to see now.
Just follow the 100 minus your Age rule.
This isn’t a perfect rule, but it gives you an idea about adjusting your investments for volatility.
There is a simple rule that you take 100 minus your age, and that is the percentage of your portfolio that should be held in stock or stock equivalents (mutual funds, index funds).
So if you are 60 years old, you should have 40% of your portfolio in stocks, and the other 60% in safe assets (bonds or treasuries).
This is just a guideline. It needs to be adjusted for your personal situation.
The L funds in the TSP, and many target date index funds, follow the same logic. They gradually become more conservative or safer as time passes. This happens automatically without you doing anything.
3. Buy at a Discount Reasonably
This is a great time to buy stocks or mutual funds cheaper.
Have you heard of dollar-cost averaging?
In a declining market, the magic of dollar-cost averaging happens.
Each month you buy, you are buying cheaper and cheaper.
Be careful about making large purchases because you think it’s cheap right now. This is a form of timing the market, and it doesn’t always work. It’s hard to know if it’s low relative to where it might be in a month or two. I like dollar-cost averaging.
4. Don’t Get Stupid with Stocks
This one gets me.
I see Facebook and various discussion groups asking “What’s the best stock to buy right now?”
Everyone has an opinion.
If it’s painfully obvious to you or your friends which stocks to buy, then it’s painfully obvious to the market, and I doubt you’ll get the deal you thought you were getting.
I would call this a form of day trading. It is again unlikely to come out ahead playing this game.
It is more likely than not you will lose money in the long run.
5. Don’t get Stupid with Debt
There’s some crazy ideas going around.
One is that you should use borrowed money (debt) to invest in the stock market because it’s so low right now.
Maybe you takeout a home equity line of credit (HELOC) paying a low rate, and invest it in stocks that are “on sale” right now like cruise lines or whatever else has been hit hard.
This is a BAD idea. It will come back to bite you. This is a form of day trading again. Don’t do it, and that goes doubly so for doing it with DEBT.
It might be advisable to take out a HELOC and have that cash available to get you through difficult financial times. You have to be smart about when you try to get a HELOC. When the economy gets bad enough, banks stop giving them, and freeze the ones they’ve already given.
Keep in mind, certain HELOCs can be recalled once you’ve taken the money out. Read your fine print.
6. Assess Your Risk with Debt in Real Estate
Sometimes having a portfolio of rental properties that’s all in cash seems crazy!
Imagine all the money I’m leaving on the table, not fully utilizing leverage.
Then a pandemic illness hits the world and you wonder if your tenants will be able to pay you rent next month. The next 6 months.
That would make it very hard for you to pay your mortgage payment(s) to the bank, especially if you are highly leveraged and on thin cash flow with no reserves.
Decide how vulnerable you are and take actions to prevent late payments on your mortgages during a crisis like this.
I mentioned the HELOC as a potential option.
Have good communication with your tenants if they start having problems paying. It may not make sense to attempt eviction the first time someone is late during this difficult time. You may have trouble finding new tenants until all of this blows over.
If you make it through this, keep in mind it didn’t get as bad as it could have.
In the future, consider how much of an equity to debt ratio you want to have on your properties. Also consider how much in reserves you’re going to have for emergencies.
Something worse could happen.
7. Stop Buying Fucking Toilet Paper
Did I miss the memo on this? How does buying toilet paper prevent the spread of Coronavirus?
How does having enough for 6 months prepare you for a quarantine. That’s really the most important thing you can think to buy?
For some reason I thought guns, batteries, candles, and portable stoves would make more sense if you were really worried about stuff getting crazy.
FULL DISCLOSURE: I BOUGHT A FEW ROLLS OF TOILET PAPER YESTERDAY
8. Look For the Opportunities
It was Warren Buffett who said “…attempt to be fearful when others are greedy and to be greedy when others are fearful.”
- Look for the opportunities in this shitty situation. (No pun intended about toilet paper purchases)
- It’s a dip in the market and we might be able to buy some investments cheaper
- We can make low offers on investment properties, and maybe get a good deal while people are uncertain about the future
- We can spend more time family if forced not to work or work from home
- We can finally get in the habit of actually washing our hands
Rich on Money
See my post on TSP Investing Strategies. These will work through any crisis as long as you stick to them…