Like most people, I have found myself challenged by the fallout from the COVID-19 pandemic. The social consequences are very real, so is the financial impact as millions of Americans face economic hardship and uncertainty.
(Related: The Record Economic Boom Is a Mirage)
As advisors, we are in a unique situation to help our clients and prospects reexamine their financial situation and goals. It is time for us the pandemic as a chance to re-envision their situation. As is the case with most of life, each hardship and challenge contains lessons to be learned. These lessons, if properly understood, can lead to long-term, positive changes.
Nowhere is this truer than in the area of personal finance. Even though the United States has long had one of the most successful, respected, and trusted financial systems in the world, COVID-19 proved that we are still vulnerable to “black swan” events.
The pandemic exposed numerous shortcomings and weak spots in the global financial system and highlighted the need to preserve market liquidity. Long-term interest rates created a situation where companies have taken on far too much debt.
The result of this excessive debt is that rating agencies will downgrade many companies. The downgrades then have the potential to create a tsunami that will overwhelm financial markets as the high-yield market has difficulty handling increased inventory.
We’ve also seen that service-based economies were not ready for an event such as the pandemic both here and around the world. Sharp declines in retail sales, for example, resulted as lockdown measures kept consumers at home. Many stores were forced to shut down, and, likely, a good percentage of those will never re-open. Even the surge of Amazon sales has not been able to blunt the pandemic’s impact on the retail sector.
Similar stories are being reported in the hospitality, travel, education, and senior services industries, all of whom have been strongly impacted by the COVID recession.
What should your clients do to keep on track during COVID-19?
It’s easy to become paralyzed by fear and uncertainty as we attempt to re-start the world. It is challenging to shut off distractions, filter news reports, and think of moving forward with money decisions and retirement planning.