If you’re like me, the days are definitely blurring one into the next. I certainly recognize that the current stay-at-home measures are in place for good reason, and my heart goes out to all the people struggling with the medical, financial and emotional toll this crisis is taking.
At the same time, I’m not great at sitting around and waiting. I like making plans and taking action. So as we all put in the effort now to beat this virus, I’m also looking to the future and asking an important question from a financial planning perspective: how can we use this crisis to grow stronger?
The current crisis is the best reminder in a generation of how important long-term thinking is in financial planning. When financial markets started to drop sharply in recent months, we saw a lot of panic among investors. With stock prices falling, many people rushed to sell investments, driven by an acute sense of self-preservation. This is understandable, but it was also quite harmful, resulting in significant losses for some.
How we grow stronger: By reaffirming our commitment to long-term financial planning. Resisting the impulse to react to short-term shocks and instead remaining focused on long-term goals will prevent emotional responses from disrupting our sound investment strategies.
Diversification has long been a foundational aspect of financial planning. However, as the stock market soared in recent years, it was easy to be lulled into a false sense of overconfidence. Lower-risk investments like bonds and life insurance were seen as less attractive when equity markets were offering sky-high returns, yet the current crisis has provided a stark reminder of why a diversified investment portfolio is beneficial.
How we grow stronger: By acknowledging the important role of diversification in creating a resilient financial plan. With diversified investment portfolios, we can strengthen our ability to maintain balanced growth in different market conditions.
Preparedness and protection
With the exception of infectious disease experts, few among us could have anticipated the current crisis, yet here we are in the thick of it. For many, this has been a painful reminder of how unexpected events can disrupt our lives. It is impossible to prepare for every eventuality and to mitigate every risk, but the better prepared we are, the easier it becomes to adapt to challenging situations.
How we grow stronger: By taking proactive steps to protect ourselves against risks. Setting aside emergency funds, ensuring some of our investments offer principal protection and putting in place robust insurance coverage are all important steps we can take to prepare for the next crisis.
Growing stronger together
The ongoing pandemic has provided a clear reminder that no one has a crystal ball offering all the answers. The scale of the current crisis and the disruption it has caused have been a shock to everyone.
At the same time, the upheaval we have seen is a good reminder of the enduring importance of financial planning fundamentals. Having thoughtful conversations, seeking out expert advice and remaining committed to long-term strategies will help us learn from this crisis and grow stronger.
Although we’re still in the midst of one crisis, that shouldn’t prevent us from taking action to prepare for the next one.