Thanks to COVID, the stock market is a roller coaster and the economy is in free-fall. (According to CNBC, while the unemployment rate hit 8.4 percent in August—a number on par with the Great Depression—it’s more likely 11 percent, due to data collection issues.) So, what’s the best way to temper the panic and save your money wisely (without stuffing wads of cash under your mattress)? We caught up with Sallie Krawcheck, a former Wall Street executive and the CEO and co-founder of Ellevest, a digital-first investing platform for women, to talk about the rules of investing (and coming out ahead) during a pandemic.
1. Rule #1: Just Don’t Look
Krawcheck is adamant. Whether it’s due to a pandemic or not, you need to look the other way during uncertain financial times. “You’ll have periods where the market is down and you’ll be tempted to do something, but acting from a place of emotion—good or bad—is a losing strategy,” she says. Instead, she explains that history shows that a “boring, stable investing plan is the most profitable.” On the flip side, active management (where you impulsively decide to drop one stock in favor of another) rarely works out. “Who really saw 2020 coming? For somebody to see that the market was going to crash in March and that the recovery was going to be K-shaped, meaning that some stocks are doing a lot better and others are doing a lot worse…and to have picked the right ones at the right time? I don’t know anybody on the planet that has done that.”
2. Rule #2: Ask for Check-ins With Your Financial Planner
If you’re using a service like Ellevest, they rebalance your portfolio for you as needed. But if you’re working with any financial planner and feeling anxious, Krawcheck says it’s fine to ping them and ask for some hand-holding. “Say, you’ve been doing a quarterly update. Maybe you want to temporarily set up to check in every month because you’re going berserk,” she says. The general rule of thumb is still not to look, but if this will help you get questions answered and feel a sense of order, reach out.
3. Rule #3: Take Stock of Your Cash Flow to Decide If It’s Actually a Good Time to Invest
Krawcheck maintains that investments must come from money you can afford not to touch for several years. She also has a checklist that’s designed to help you know if/when you’re in a financial position to do so. First, have you paid off your high-interest debt? “Do not come to me to invest if you are carrying around a 25 percent interest rate on a credit card because of all the stuff you had to buy/wanted to buy over the past few years,” she says. “You have to pay that off first because it is sapping your financial well-being.” Next, make your 401(k) a priority. “If there’s a match and you’re not taking advantage of it, that’s leaving free money on the table,” Krawcheck adds. Finally, build up that emergency fund. “You want to have 3 to 6 months of take-home pay in a savings account that you don’t touch until it’s an emergency. After all those boxes are checked, you can focus on investments that you can leave in the equity market for the long-term.”
4. Rule #4: Don’t Sweat the Fact That You Don’t Have Stock in Zoom
“I wish I bought Bitcoin. I wish I bought Amazon. I wish I bought Ever. But it’s only clear because it’s in the past,” she says. And, as much as we all wish we could have predicted the fact that Zoom use would surge, you just can’t anticipate these things. “There are so many things that can happen, whether it’s Trump tweeting about another company, the possibility of a vaccine, Congress passing another Stimulus bill or the threat of another COVID flare-up. It all makes projecting the market that much more difficult.”
5. Rule #5: If You’re Experiencing Financial Hardship, It’s OK (and Smart) to Take a Break
“If you’ve been negatively impacted by the pandemic where you took a 10 percent salary cut, but you’ve paid off your credit card debt, haven’t had to dip into your emergency fund and your company is going to be fine, I’d say, fine, keep investing,” Krawcheck says. “But if you lost your job and are halfway through your emergency fund, then you have to stop investing right now.” Instead, she recommends getting your expenses as low as you can and feeding any savings back into your emergency fund. “It all depends on personal circumstances, but what you don’t want to do is invest money you think you’re going to need before 10 years in the stock market. If that means, in a pandemic, you have to pull back to prioritize your emergency fund and you miss a big stock market move, so what?” Krawcheck says it’s also OK to reduce your 401(k) contributions. “What you want to keep an eye on is how much money you have sitting in the bank to call on if you lose your job or if your hours get cut.”