Financial lessons from the pandemic

They call them 100-year events, things that only happen once every century or so. The Flood of 1993. The Great Recession of 2007-2009. The Cubs winning the World Series.

And now the COVID-19 pandemic.

Ever wonder why once-in-a-century events seem to occur so often? It’s simple if you think about it: if there are 100 different things – devastating floods, horrible recessions, worldwide healthcare crises – that statistically only happen every 100 years, that means something pretty bad is likely to happen every year on average.

So, we should never be surprised when these things come out of the blue, even though they never seem to happen on schedule. When the dot-com bubble burst in 2001, it triggered a “once-in-a-lifetime” market collapse, only to be followed by the Global Financial Crisis – and yet another major bear market – just six years later.

We can hope and pray that medical researchers, healthcare providers, and government leaders have learned enough from the COVID pandemic to help us better cope with the next one. But what have you and I learned from the last two and a half years? What are the financial lessons we should be ready to apply when fate throws us its next curveball?

You need a Plan B (or at least a Plan A). Plan A tells you how much money you should be investing every month at age 35 to likely be able to retire at age 65. Plan B is what you might need to do if one of the aforementioned disasters shows up just before you stop working, such as postponing retirement until age 66.

You should always have an emergency fund. Millions of Americans lost their jobs during the pandemic, but with more than half of U.S. households now living paycheck-to-paycheck, even a small financial setback could push many over the edge. The lesson: spend less than you earn and divert the money you save into an emergency reserve fund until it reaches the equivalent of 30% of your annual gross income.

You should get out of debt. If you lose your job or have big, unexpected expenses while living paycheck-to-paycheck, you might be forced to dig yourself deeper into debt. Your emergency reserve will buy you some time, but getting your debt under control gives you even more choices.

You can live on less if you have to. The pandemic taught us that for what we were paying to watch one movie in an air-conditioned theater, we could stream unlimited movies in our pajamas for a month. The healthcare crisis took away many lifestyle options, but it also showed us that we could get by just fine on less than we were spending.

You can’t time the market. When the pandemic shut down much of the economy in February of 2020, it triggered a massive selloff in stocks. The S&P 500 dropped 33.9% in just 33 days and then bottomed, ending the shortest bear market on record. Many investors sold in a panic during those 33 days, made even more frightful by the uncertainties created by the pandemic. And yet by mid-August of the same year, stock prices had fully recovered and gone on to new highs. The shortest bear market ever was followed by the quickest recovery ever, leaving many investors who had hoped to sidestep the market’s fall much poorer for their efforts.

You don’t buy stocks with your spending money. Any funds you plan to withdraw from your portfolio over the next five to ten years – should be in something far more predictable than stocks. Over longer time periods, equities have historically offered very attractive returns, but day-to-day, they’re a gamble. And any gambler will tell you that you don’t play poker with the rent money.

As scary as it is to consider, we have to assume that we won’t have to wait a hundred years for the next calamity to come along. Let’s not miss the lessons they teach us.

The Cubs could even win another World Series in our lifetime, but I wouldn’t bet on that one.

Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.