World Economics and Your Pocket

World Economics and Your Pocket is something you need to take a look at. We all agree that 2020 was a strange year, to say the least. And whatever happens in 2021 in the practical fight against COVID-19 – things are looking up as vaccines are beginning to roll out worldwide as the year ends – there is no doubt that the global economy has been affected negatively and that is likely to continue well into 2021 at least. 

But what does the global economy mean to you, a person living and working through these pandemic times in South Africa? How can you protect your financial situation in the face of a probable recession? Here’s some points and advice to keep in mind as 2021 dawns. 

World Economics and Your Pocket

The Bad News Is…

Let’s start with the bad news: There is only so much bracing you can do. You really cannot make finances recession-proof, particularly if you are doing what you are supposed to be doing, which is investing for the future.

 However, you are not helpless. Humans are generally bad at sticking to their investment strategies and become their own worst enemy when things get rough in the markets.

 Before working yourself into a full-fledged panic attack, here’s the good news: There are ways to lessen the blow. 

World Economics and Your Pocket

 Advice for Everyone

First, some universally applicable wisdom: Don’t let the threat of a recession push you into making any emotional decisions about your investments. 

 The best thing you can do is stay the course of consistently contributing to your retirement plan and other investments. If you find yourself tempted to do something drastic, avoid looking at your portfolio — or remind yourself that making a move out of fear is typically far more damaging than maintaining your status quo.

 Panicking and selling in a bad market is the big danger. The problem is when the market turns around—and it will—it will do so pretty quickly. People who try to time the market almost always wait too long and miss the upturn.

From hereon we take a look at particular stages of life and World Economics and Your Pocket.

World Economics and Your Pocket

Advice for People in Their Twenties and Early Thirties

The fear of losing money when the stock market takes a tumble is, frankly, laughable to plenty of young people who are more focused on making ends meet and paying off student debt than investing.

 For this group, one of the biggest threats in a recession is job loss. There are a few ways to prepare for that scenario, one of which is to focus on amassing the recommended three to six months of living expenses in an emergency savings fund. For many that is just not possible right now, so it is OK to think smaller. Your goal should be to save at least one month’s worth of living expenses to cover basic bills and put food on the table.)

 This takes us to point two: Have more than one stream of income. Especially if you are not confident in the security of your main gig, having a side hustle — which could include anything from driving for a ride share to freelancing to babysitting to selling items on Facebook Marketplace to working part-time in retail — helps reduce the overall impact of getting laid off. It gives you cash flow while you are looking for a new job.

 For those who have started to invest, even if that investing is just putting a small percentage of each paycheck into your retirement plan, it is important to keep investing. You should also check in on your asset allocation, or how much you have invested in different asset classes like stocks and bonds, which may need some tweaking as the economy changes.

World Economics and Your Pocket

Advice for People in Mid-Career

For those who are further along in their careers, it is even more important to avoid panicking and dramatically changing your investment strategy. You have less time in your forties and fifties to weather the volatility of the market and reach your retirement savings goal, so selling off stocks during a recession and trying to time getting back into the market later in could result in a massive blow to your retirement funds.

 You cannot control what the markets will do, but you can control how much you save. It is also still ideal to have that three to six months’ worth of living expenses set aside to provide a buffer for your household in the case of job loss, especially if you are part of a one-income family.

 You probably have a good sense about how recession-susceptible your job could be, which may indicate how serious you need to get both bolstering your emergency savings and even considering finding another income stream. While jobs that perform necessary services, like medical professionals, electricians, plumbers, and educators, all tend to be more recession-proof, cyclical industries, like real estate, are generally more susceptible.

World Economics and Your Pocket

Advice for Retirees and Almost-Retirees

A recession can do serious harm to those who are rapidly approaching retirement or recently retired, which is why it may be prudent to push back a full retirement date.

 This may also be the time to bring in an expert. If you have never worked with a financial planner, at least a one-time session could provide a gut check on your retirement strategy.

 For those who are already retired, try to make sure essential expenses are covered by guaranteed income such as pensions, and immediate annuities instead of drawing down on investments. This could mean a lean budget and fewer discretionary spending items for a while, but it will help offset the impact of a recession and make sure you do not outlive your money.

 No matter where you are in life, it is important to keep one fact in mind: this is temporary, and even if it takes a while, there will be recovery and future growth.

As always for professional advice call us we have Financial Advisors who are trained for circumstances such as these.