COVID-19 Stage 2: Prepare Your Portfolio and Your Life
It’s time to face the music. The effects of this pandemic are going to be more long-lasting than we may have first thought.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
The COVID-19 epidemic has changed all our lives. Just as we hoped for a slowing of the disease in the summer and a return to normalcy, increasing cases across the country leads to questions about how life might be impacted for the rest of the year and into 2021. How can you prepare your portfolio and your lifestyle to the resurgent risks?
1. Accept that COVID-19 will impact us longer than we thought
From the very beginning, stay-at-home orders and restrictions were sold as temporary measures, but they are turning into longer-lasting, lifestyle-changing rules. Initially, it was common to make plans three months out, hoping things would be back to normal. With your portfolio, you might have thought the same thing: This is a temporary induced market event; things will be better in six months.
What the resurgent virus is showing, is that until there is a vaccine, a therapeutic or until society finds a better way to cope, this virus will impact economic activity likely well in to 2021. That could also mean continued volatile markets over that longer period.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Since 1900, the average recession has lasted about 15 months. The recession of 2020 officially started in February. Investors need to be prepared for a prolonged economic impact.
2. Re-evaluate risk
The risk you were willing to take at the beginning of the year might not be the same amount of risk you are willing to take now. That is OK as we are facing some of the biggest fundamental threats to the economy in the history of the country. How much risk are you willing to take? It’s something you consistently should be addressing in your portfolio. Are there sectors you want to avoid or companies to get out of? What about your income plan in retirement? Should you turn on Social Security earlier and let your investments weather the storm? The banks recently went through a stress test to gauge their ability to handle a prolonged downturn. It’s time to put your own retirement plan through a similar stress test.
3. Instead of burying your head in the sand, ask more questions
Times like these require being more informed. For the past decade, investors have been rewarded for doing nothing as the S&P 500 rallied over 400% from the market lows of 2008. The next decade might require more knowledge to navigate. Some of the winners of the past might not be the same winners of the economy of the future.
The most important thing is to have your eyes open to the world around you. Ask your adviser how much risk you are exposed to. If you have international or small-cap holdings or complex financial instruments, ask why. Any strategy, any investment, and any adviser should welcome questions and be willing to help communicate through these challenging times. Sometimes staying the course with a long-term strategy makes sense, but it is important to consistently evaluate your options and stay informed of the changing landscape.
4. Tax advantage of lower tax rates now
The federal government spent an overwhelming amount during the first and second quarter of this year to support the economy. This included trillions in relief to individuals and businesses alike. The federal debt has ballooned (at $26.5 trillion and counting), and finding a way to repay that debt in the decades ahead will be challenging. One obvious way to repay that debt is through higher taxes. This could include higher income taxes and higher capital gain taxes. It might make sense to harvest gains in some of your non-IRA accounts. Resetting your tax base allows you to take advantage of historically low capital gains tax rates, and the after-tax asset could provide advantages in your long-term income plan.
You also may want to consider a Roth conversion with assets that have been negatively impacted by volatility. Consider paying taxes on a portion of your IRA now if your account is lower, and when the position recovers you will enjoy the tax-free benefits of the Roth.
5. Embrace a different phase in your retirement
I spoke with a client recently who just retired, and she mentioned how much the social distancing and restrictions have taken the joy out what she had been planning. She was planning trips and vacations and more time with friends — and now that was all on hold.
As disappointing as these adjustments have been, push yourself to try something new and find new ways to enjoy the world around you. Try renting an electric bicycle and go for ride on the beach boardwalk. Organize a virtual game night via Zoom. Rent an RV and take that road trip you always wanted.
Did you know there are over 12 world class museums you can visit online?
And there are 33 National Parks you can scout out virtually?
This is a unique phase in your life. Try to find as much joy as you can during the craziness.
6. Contain the noise
As much as we need to stay informed, educated and up to date in the world, make sure you don’t overdo it. It is so easy to let the issues of the world overwhelm us and consume our attention and energy. Look at your investments, watch the news, but not all day every day. Decide on conscious ways to take care of your mental health and limit any of those engagements that overwhelm you.
As we embark on this next phase of the COVID-19 epidemic, it’s important to have our eyes open about the challenges ahead but face it with courage and grace and make the best of it.
Investment Adviser Representative of USA Financial Securities. Member FINRA/SIPC A Registered Investment Advisor. CA license # 0G89727 https://brokercheck.finra.org/
-
Quiz: Do You Know How to Avoid the "Medigap Trap?"Quiz Test your basic knowledge of the "Medigap Trap" in our quick quiz.
-
5 Top Tax-Efficient Mutual Funds for Smarter InvestingMutual funds are many things, but "tax-friendly" usually isn't one of them. These are the exceptions.
-
AI Sparks Existential Crisis for Software StocksThe Kiplinger Letter Fears that SaaS subscription software could be rendered obsolete by artificial intelligence make investors jittery.
-
Social Security Break-Even Math Is Helpful, But Don't Let It Dictate When You'll FileYour Social Security break-even age tells you how long you'd need to live for delaying to pay off, but shouldn't be the sole basis for deciding when to claim.
-
I'm an Opportunity Zone Pro: This Is How to Deliver Roth-Like Tax-Free Growth (Without Contribution Limits)Investors who combine Roth IRAs, the gold standard of tax-free savings, with qualified opportunity funds could enjoy decades of tax-free growth.
-
One of the Most Powerful Wealth-Building Moves a Woman Can Make: A Midcareer PivotIf it feels like you can't sustain what you're doing for the next 20 years, it's time for an honest look at what's draining you and what energizes you.
-
I'm a Wealth Adviser Obsessed With Mahjong: Here Are 8 Ways It Can Teach Us How to Manage Our MoneyThis increasingly popular Chinese game can teach us not only how to help manage our money but also how important it is to connect with other people.
-
Looking for a Financial Book That Won't Put Your Young Adult to Sleep? This One Makes 'Cents'"Wealth Your Way" by Cosmo DeStefano offers a highly accessible guide for young adults and their parents on building wealth through simple, consistent habits.
-
Global Uncertainty Has Investors Running Scared: This Is How Advisers Can Reassure ThemHow can advisers reassure clients nervous about their plans in an increasingly complex and rapidly changing world? This conversational framework provides the key.
-
I'm a Real Estate Investing Pro: This Is How to Use 1031 Exchanges to Scale Up Your Real Estate EmpireSmall rental properties can be excellent investments, but you can use 1031 exchanges to transition to commercial real estate for bigger wealth-building.
-
Should You Jump on the Roth Conversion Bandwagon? A Financial Adviser Weighs InRoth conversions are all the rage, but what works well for one household can cause financial strain for another. This is what you should consider before moving ahead.
