Will investors change behavior after the pandemic?
Published 3:07 pm Monday, April 5, 2021
The COVID-19 pandemic may end up changing our lives in some significant ways. To cite one example, it’s likely we’ll see a lot more people continue to work remotely, now that they’ve seen the effectiveness of tools such as videoconferencing. Education, too, may be forever changed in some ways. Perhaps just as important, though, is how many people may now think more about the future – including how they invest.
If you work with a financial professional, you may have connected with this individual over the past several months through a videoconferencing platform, rather than in person. Some people like this arrangement because it offers more scheduling flexibility and eliminates the time and effort of traveling to and from an appointment. Others, however, still prefer face-to-face contact and look forward to when such arrangements will again be practical and safe for everyone involved. But if you’re in the first group – that is, you prefer videoconferencing – you may now wish to use this communication method in the future, at least some of the time.
But beyond the physical aspects of your investing experience, you may now be looking at some changes in your investment strategy brought on, or at least suggested, by your reactions to the pandemic.
For example, many people – especially, but not exclusively, those whose employment was affected by the pandemic – found that they were coming up short in the area of liquidity. They didn’t have enough easily accessible savings to provide them with the cash they needed to meet their expenses until their employment situations stabilized. Consequently, some individuals were forced to dip into their long-term investments, such as their 401(k)s and IRAs. Generally speaking, this type of move is not ideal – these accounts are designed for retirement, so, the more you tap into them early, the less you’ll have available when you do retire. Furthermore, your withdrawals will likely be taxable, and, depending on your age, may also be subject to penalties.
If you were affected by this liquidity crunch, you can take steps now to avoid its recurrence. Your best move may be to build an emergency fund containing three to six months’ worth of living expenses, with the funds held in a separate, highly accessible account of cash or cash equivalents. Of course, given your regular expenses, it may take some time to build such an amount, but if you can commit yourself to putting away a certain amount of money each month, you will make progress. Even having a few hundred dollars in an emergency fund can help create more financial stability.
Apart from this new appreciation for short-term liquidity, though, the foundation for your overall financial future should remain essentially the same. In addition to building your emergency fund, you should still contribute what you can afford to your IRA, 401(k) and other retirement plans. If you have children you want to send to college, you might still explore college-funding vehicles such as a 529 plan. Higher education will still be expensive, even with an expansion in online learning programs.
Post-pandemic life may contain some differences, along with many similarities to life before. But it will always be a smart move to create a long-term financial strategy tailored to your individual needs, goals and risk tolerance.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor Edward Jones, Member SIPC