Last week I invested $2,000 in a general investment account for my daughters, hoping to earn higher returns than we would in a high-interest savings account.
I spoke with a financial adviser who told me the worst was behind us, but the economic news over the past week proved him wrong.
Still, I’m leaving my money invested in hopes that it will still earn a decent return in the long run.
Ten days ago, I opened an investment account as a means for saving for my two daughters, who are 1 and 5.
I had been intending to transfer a portion of their savings into an investment account for months in order to get a higher rate of return. With COVID-19 market concerns in the news, investing was at the forefront of my mind. I plan to have the money invested for at least 10-15 years, so I wasn’t worried about short-term market drops. I figured with prices low, it was a good time to buy.
I opened the account on March 7, but because that was a Saturday the funds ($2,000) were withdrawn on March 9, the day the stock market fell nearly 8%. Still, I told myself I had made the right decision. I even asked experts about it, and one financial planner told me not to worry: big drops rarely signal the start of a bear market (a market decline of 20% from recent highs), he said. Hearing that, I breathed a sigh of relief.
And yet, two days later the market was officially in bear market territory, for the first time in 11 years. As the bad news continued to pour in about COVID-19 and its economic implications, I began second guessing myself and worrying that I had made the wrong choice.
In times of uncertainty, having cash on hand feels safe
Before opening the investment account, my daughters’ savings were in a high-interest savings account. It usually took me about three days to transfer money from that account to one I could access more readily, like my checking.
Since I opened a general investment account, I can withdraw the money (minus any losses) in about the same amount of time without penalty (this would be different if the money were in a tax-deferred account like a retirement or college-savings account).
And yet, it still feels scary to have the money in the market. Having a savings account gives me a sense of security: I know exactly where my funds are and how much is there. Having money in the market right now feels the opposite of secure. No one knows what the coming weeks and months will bring — not me, and not financial professionals like the man who told me the worst was behind us.
If I had any idea 10 days ago what was going to happen to the market this week, I would not have invested right now. Of course, hindsight is 20/20 and I can’t change the past.
Despite my trepidation, I’m keeping my money invested
I’ve watched the market continue to decline over the past week, but I’ve left my money invested. I have no plans to take it out. While the timing wasn’t ideal for starting an investment account, that decision has been made, so I’m sticking with my plan to not touch the money for 10-15 years.
Part of my reasoning is that leaving my money in the market feels like the most socially responsible thing to do. I’m trying to follow my morals as I respond to COVID-19. I’m practicing social distancing and washing my hands constantly. When I encountered a whole pile of toilet paper at the supermarket, I took just one package, since that’s all my family needs for the next few weeks.
My $2,000 is a minuscule amount in the US economy. But, it’s the tiny part that I can control. Maybe if I and other nervous investors follow their plans and leave money in the market, we can collectively make a small difference. Then again, maybe I’m kidding myself. Right now no one knows.
I’m lucky that my income has only been slightly diminished by the virus and the global response. I should be able to continue to cover expenses, and I never planned on touching the money that’s invested anyway. There’s privilege in being able to ride out the market fluctuations, but I’m going to try to stick with my original plan and do just that.
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I’m only about 6 years away from retirement, but financial advisers say the best thing I can do right now is keep investing as usualI’m a financial planner, and I’m giving all my clients the same advice for investing while the market is down: Think about how your decision will feel in 2023I freaked out in 2008 and pulled all my cash out of the bank. I know better now, and this time I’m injecting money into the market instead.
(Bloomberg) — Every economic shock leaves a legacy. The deadly coronavirus will be no different.The great depression spurred a “waste not want not” attitude that defined consumer patterns for decades. Hyperinflation in the Weimar Republic still haunts German policy.The Asia financial crisis left the region hoarding the world’s biggest collection of foreign exchange. More recently, the 2008 global financial crisis drove a wedge through mature democracies that still reverberates, with workers suffering measly pay gains in the decade since.This time it’s a public health emergency that’s shaking up the world economy. In just a matter of weeks, people in affected areas have become accustomed to wearing masks, stocking up on essentials, canceling social and business gatherings, scrapping travel plans and working from home. Even countries with relatively few cases are taking many of those precautions.Traces of such habits will endure long after the virus lockdowns ease, acting as a brake on demand. On the supply side, international manufacturers are being forced to rethink where to buy and produce their goods — accelerating a shift after the U.S.-China trade war exposed the risks of relying on one source for components.In the white-collar world, workplaces have amped up options for teleworking and staggered shifts — ushering in a new era where work from home is an increasing part of people’s regular schedule.“Once effective work-from-home policies are established, they are likely to stick,” said Karen Harris, managing director of consultancy Bain’s Macro Trends Group in New York.Universities stung by travel bans will diversify their foreign student base and schools will need to be better prepared to keep educating online when breakouts force their closure.The tourism sector is seeing the most drastic hit, with flights, cruises, hotels and the web of businesses who feed off the sector struggling. While tourists will no doubt be eager to explore the world and relax on a beach again, it may take some time before the industry that hires about one in 10 people recovers.The virus has also turned the economic policy outlook on a dime and created new priorities. Central banks are in emergency mode again, while governments are digging ever deeper to find money to prop up struggling sectors. Hygiene is soaring up government and corporate agendas — indeed, Singapore already plans to introduce mandatory cleaning standards.“This outbreak is unprecedented in terms of its nature of uncertainty and associated social and economic impact,” said Kazuo Momma, who used to be in charge of monetary policy at the Bank of Japan. Tighter borders controls, wider insurance coverage and lasting changes to working and commuting patterns will be just some of the micro-economic changes that will endure long after the virus, Momma says.In China, where the virus first erupted in Wuhan late last year, the top legislature has already imposed a total ban on trade and consumption of wild animals amid scientists’ warnings that the deadly coronavirus migrated from animals to humans. Additional strict hygiene rules are expected that will accelerate a push by wary consumers to online shopping, similar to how the 2003 SARS outbreak changed shopping habits as people avoided the mall.Analysis by Bain & Company found that China will see pronounced immediate changes in health care as more and more rudimentary checkups and transactions are conducted through online channels to avoid the risk of contamination in crowded waiting rooms and wards.Governments may spend much more on health care to avoid the massive cost associated with epidemics, according to a new paper on the macroeconomic impact of the virus published by the Brookings Institution and co-authored by Warwick McKibbin and Roshen Fernando of the Australia National University.“The global community should have invested a great deal more on prevention in poor countries,” McKibbin said. He was also co-author of a previous paper that estimated the 2003 SARS outbreak wiped $40 billion off the world economy.Because no one knows how the virus will play out or what the final human and economic toll will be, economists caution against concrete predictions. It could be that much of the disruption will revert to normal activity once the outbreak is contained, according to Nobel laureate Edmund Phelps of Columbia University.“I think most businesses and certainly the behemoths in the U.S. and elsewhere will not fail to go back to normal business practices,” he said.Economists like Paul Sheard, a senior fellow at Harvard University’s Kennedy School, also caution that because no two economic shocks are the same, it’s far from certain what legacy this one will leave.Fabrizio Pagani, a former adviser to the Prime Minister of Italy, draws on previous shocks for guidance.“The oil supply shock in the 70s led to the first efforts of energy conservation and efficiency,” he said. “The demand shock determined by the great financial crisis was the rationale for a new, quite radical, regulatory framework across the banking and financial sectors.”This time around, he expects changes to everything from online schooling and distance learning to industrial strategy as existing business models are reworked.A triple convergence of Brexit, the U.S. China trade war and now Covid-19 could reshape the world’s manufacturing supply chains, according to Michael Murphree, of the University of South Carolina’s Darla Moore School of Business.Kathryn Judge, a financial markets and regulation expert at Columbia University, says the U.S. banking crash of 2008 has left deep scars by fueling divisive politics and declining levels of home ownership. The current crisis, as nations around the world take emergency steps to shield citizens from coronavirus infection, will have an impact too.“Long-brewing debates about how to revamp the U.S. health-care system might benefit from a renewed sense of urgency, enabling structural change,” Judge said.How that plays out on the political stage will be key. Would-be Democratic nominee Joe Biden is pushing a plan that would build upon Barack Obama’s Affordable Care Act. President Donald Trump, meantime, is downplaying the risk to the U.S. economy posed by the coronavirus and sought to cast blame for the pandemic at other countries for what he labeled a “foreign virus.”James Boughton, who served for decades at the International Monetary Fund, including as the fund’s historian, cites the collapse in South Korea and Indonesia as catalysts for change, provided governments act.“Only in a crisis are governments able to rally people to accept necessary but painful reforms,” said Boughton. “Every crisis is also an opportunity.”\–With assistance from Zoe Schneeweiss.To contact the reporter on this story: Enda Curran in Hong Kong at firstname.lastname@example.orgTo contact the editors responsible for this story: Malcolm Scott at email@example.com, Alexandra VeroudeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Long-term U.S. mortgage rates have sunk to a record low, giving many homeowners an opening to refinance their loans to free up money to spend or save. The average rate on a 30-year fixed mortgage hit a record low of 3.29% this week from 3.45% last week, mortgage buyer Freddie Mac said Thursday. The decline is being driven by investors shifting money out of the stock market and into the safety of U.S. Treasurys as the coronavirus outbreak has deepened.