Hello there! Let me introduce myself. I’m Lindsey Bell, the Chief Investment Strategist at Ally Invest. My role is to analyze the financial environment and interpret how market trends could affect our customers. I hope you’re taking care of yourself and that you and your loved ones are safe and well.
It’s been an unnerving few weeks, to say the least, and I think everyone is struggling to quantify the impact of the new coronavirus (COVID-19). To that end, we’ve seen some historic days in the markets and we’d like to share a few thoughts to help you with some of the financial questions you may be asking yourself right now.
Market Volatility and Its Effect on Investments
Stocks have swung in dramatic fashion, and there is a lot of uncertainty out there with the coronavirus outbreak. The S&P 500 has dropped 30% in a month, and the Federal Reserve Board (Fed) has taken extraordinary measures to boost confidence. There is even talk of fiscal stimulus from the government.
All of that market volatility may be unsettling, but don’t let it shake you. You have an investing plan for a reason: to be your guiding light during periods like this. If you’re already invested, remember that it’s never good to make any decision — investing or otherwise — under duress. Your future self will thank you for this. We know the pendulum swings, and that markets hit rough patches every once in a while.
Despite the current decline, history shows bear markets eventually recover. Since 1946, the S&P 500 has weathered 12 bear markets (declines of 20% or more from a 52-week high) on its way to 7% annualized gains over that period. Put another way – the market tends to stabilize over time.
Budgeting and Saving
In times like these, everyone is thinking of tightening their belts, and it may make sense to revisit your budget and adjust your savings strategy for the next few months. For example, if a portion of your monthly budget went to dining out, entertainment and commuting expenses, you may want to redirect those funds towards savings or other urgent priorities.
If you’re looking for a simple budgeting model to work from, consider the 50/30/20 budget. Here’s how it works: 50% of your income goes toward needs like groceries, gas and rent/mortgage; 30% goes toward wants; and 20% is allocated toward savings and debt repayment.
Your savings account is still a safe place to grow your FDIC-protected emergency fund, giving you the ability to access funds quickly if needed and to get the chance to earn some interest on your money.
Rethinking Mortgage and Auto Loan Payments
It may not feel like the right time to make a major financial decision, but the Fed’s recent rate cuts could work to your advantage if you’re currently paying off a home or auto loan.
If you’ve been searching for a low rate or looking to refinance, this could be your opportunity to lower your monthly payments. It’s worth reaching out to your loan provider to find out what your options are. If you are able to spend less on your monthly mortgage payment, you can redistribute those savings to other needs.
You may also want to also reconsider refinancing your auto loan. It’s an option some consumers forget about since mortgages get all the refinancing attention, but it’s one that could save you some cash. Just consider any prepayment fees you may have to pay to refinance before making your decision.
We’re here for you.
First and foremost, take care of yourself and your loved ones in these turbulent times. Stay safe, wash your hands, and do your best to adapt to this new normal. As your ally, your financial health is our first priority…and we’re here to help however we can. We’ve recently announced a relief package that may help you navigate financial hardships over the next few months. We’re also closely monitoring the markets, and we’ll continue to update you as this economic situation evolves. We know there’s a lot of uncertainty out there, but we are determined to navigate the challenges together.
The opinions expressed here are not meant to be used as investing advice. For more information, visit our website.
Lindsey Bell, Ally’s chief markets & money strategist, is an award-winning investment professional with a passion for personal finance and more than 17 years of Wall Street experience. Bell’s unique ability to connect the dots between data and real life and craft bite-sized money ideas that people can use and apply stems from her deep background as an analyst, researcher and portfolio manager at organizations including J.P. Morgan and Deutsche Bank. She is known for demonstrating why and how an understanding of all things money improves a person’s finances and overall wellbeing. An ongoing CNBC contributor, Bell empowers consumers and investors across all walks of life and frequently shares her insights with the Wall Street Journal, Barron’s, Kiplinger’s, Forbes and Business Insider. She also serves on the board of Better Investing, a non-profit focused on investment education.