Widespread panic. $7 trillion of wealth evaporated. Life as we know it shut down in some capacity within a matter of weeks. Straight out of a movie some would say.
Panic Selling and Panic Buying
On February 19, the market was at all-time highs. Within 15 days, we entered a bear market (20% drop from its peak) at the fastest clip ever. Extreme market swings jarred many investors and led to panic-selling. Simultaneously, consumers started panic-buying goods like toilet paper, hand sanitizer, and disinfectant wipes. Both panic selling and buying stem from a perceived sense of control. We long for control when things seem out of sorts. Controlling our losses and stockpiling goods gives us a feeling of control at least subconsciously.
Overconfidence, Uncertainty, and Unshakeable Joy
1 Timothy 6 is an incredible passage that discusses wealth and riches. Verse 10 would likely be on the all-star team of money verses (For the love of money is the root of all kinds of evils…), but verse 17 is insightful at time like this.
It says, “As for the rich in this present age, charge them not to be haughty, nor to set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy.” Account values can lead to overconfidence. Our self-worth can be tied too closely to our net worth, which can often lead to pride as we think, “I got this.” If nothing else, this market crash reveals more quickly than ever that our money is so uncertain. Money isn’t dependable. Jesus is. Our riches aren’t our fortress. Savvy stock market moves aren’t our footing. Jesus, and he alone, is our hope and firm foundation. Paul also reminds us at the end of the verse that we trust a heavenly Father who is generously rich towards his children. He gives for our enjoyment and since he is unshakable, our joy is too. Even in times of trial (James 1:2-4). So how can we practically respond financially during times like this?
10 Practical Steps to Consider During a Financial Crisis
- Remember, it’s God’s money. We are merely stewards. Your accounts are his accounts.
- Help those in need. Look for opportunities to generously serve others.
- Review your budget. Take advantage of social distancing by reviewing your expenses and tweaking your budget.
- Invest and save. Investments are on sale, so consider loading up while you can. Increase your 401k savings and make 2020 IRA contributions now while markets are down.
- Revisit your financial plan. Evaluating investments should always be done in the context of financial planning. A financial plan is like the picture on a puzzle box and investments are simply several important pieces.
- Consider Roth Conversions. A conversion is a transfer from a Traditional IRA to a Roth IRA, which then grows tax free. Converting more shares while the market is down should result in more potential tax-free growth later. That transfer, however, requires you to pay taxes so consult with your accountant and financial advisor.
- Harvest your losses. Tax-loss harvesting is the consolation prize of market downturns. When regular investments are sold for a loss you could potentially reduce your taxable income or offset gains you might have later in the year. Check with your tax professional and financial advisor for specific recommendations to strategically sell.
- Refinance your mortgage. Refinancing at historic rates or moving to a 15-year loan could save tens of thousands of dollars in interest over the long term. Even dropping your rate by a point could save a lot of money.
- Don’t panic sell. One of the worst things you can do during extreme volatility is get out completely. Historically, six of the 10 best days in the market came within two weeks of the 10 worst days. It’s impossible to time the market.
- Remember, this too shall pass. During extreme uncertainty, it’s hard to remember it won’t last forever. While the down days are hard to stomach, over the long-term markets go up.
Jason R. Topp, CFP® is a CERTIFIED FINANCIAL PLANNER and follower of Jesus. He and Jen have three kids and are members of the Bethel Church Cedar Lake campus.