4 Financial Lessons to Emerge Stronger from the Pandemic

4 Financial Lessons to Emerge Stronger from the Pandemic

It’s probably fair to say that most Canadians will be happy to bid farewell to 2020, and there are still three months to go until the end of the year.

The pandemic has taken a heavy toll, from the loss of lives and jobs to the disruption of schooling and retirement. Financially, countless individuals and families across the country have been negatively impacted.

While it’s easy to focus on the negative, we believe there are lessons to be learned from the pandemic that will help us emerge stronger in the years ahead. Here are four of them.

Lesson 1: An emergency fund is essential

This year, countless Canadians have lost jobs, struggled with collapsing businesses or faced sharp declines in their investment returns. For many, this has resulted in a major cash crunch and enormous financial stress.

The current pandemic may be a once-in-a-100-years event, yet we can be confident that other crises will emerge during our lifetime. That’s why a key takeaway from this pandemic is the importance of establishing a financial safety net.

Whatever your financial situation, setting aside enough money to cover at least 3–6 months of your living expenses is not just a good idea – it’s essential.

Lesson 2: We can all reduce wasteful spending

Amid the financial fallout from the pandemic, many Canadians have been reviewing their spending with a more critical eye. With incomes squeezed or disappearing for many, it’s no surprise that people have been looking for ways to trim their monthly expenditures.

From rarely used subscriptions to frequent dining out, it’s up to each of us to decide what we consider essential versus frivolous. Yet for most of us there are opportunities to reduce unnecessary spending.

You work hard for your money, so you owe it to yourself to ensure you’re not wasting it needlessly.

Lesson 3: A portfolio loses value more easily than it gains

The global spread of COVID-19 rocked stock markets in early 2020, with the TSX Composite Index plunging by 21.6% in the first quarter of 2020 compared with end-2019. Although the sharp drop has been followed by a relatively rapid rebound, the index is still short of its February 2020 peak.

For investors, this fluctuation during the pandemic has provided an important reminder for investors: if your portfolio drops by 20%, it will take more than a 20% rise to return to the level it was at before. Why? Because a 20% drop in a $1,000 investment takes you to $800, but a 20% rebound takes you only up to $960.

The lesson here is that it can take longer to rise than to fall. So if you’ll need money in the short term to buy a house or for retirement income, your portfolio should generally favour low-volatility investments.

Lesson 4: Regular portfolio rebalancing should be a priority

Aligning your portfolio with your risk profile is an investment best practice, but it shouldn’t be a one-off event. Without regular portfolio rebalancing, a portfolio that was meant to be 70% equities may have risen to 90% in the pre-pandemic bull market.

The problem here is that when stock markets plunged earlier this year, this portfolio would have been exposed to much higher volatility and risk at 90% equities versus the intended 70%. With regular rebalancing, the portfolio would have locked in gains gradually during the bull market and faced the crash with only 70% equity exposure.

Rebalancing your portfolio regularly can mean forgoing some potential gains when markets are strong, but it also means you’ll be at a more comfortable risk level when tough times hit.

Translating lessons into action

The pandemic has shown us how difficult it is to plan for all eventualities. Yet is has also reminded us of the value of financial planning best practices.

To discuss how to apply these lessons to your situation and get on track to a better financial future, contact us contact us at info@rubachwealth.com or at 647.349.7070.

 

 

 

Love, Marriage and Life Insurance

Love, Marriage and Life Insurance

Marriage is the perfect time to start shopping for life insurance. Why? Because it’s when you start sharing your life – and your debt – with the one you love.

Here’s why life insurance for married couples should go hand in hand with saying, “I do.”

A shared life means shared responsibilities

While it’s quite unromantic to think about all the legal and financial changes that come with signing a marriage license, I firmly believe in talking about it.

The reality is that marriage comes with a joint responsibility of sharing life together, which includes debt.

Even if you have no outstanding debt at the time of your wedding, you will undoubtedly be sharing some financial obligations with your spouse down the road, whether that’s a car, a house, graduate school or credit card debt.

With this financial future ahead of you, now’s the time for you and your spouse to review your insurance coverage. Having the right type and right amount of insurance will help ensure that your finances are protected from any accidents or lawsuits down the road.

You can lock in a good rate now

In general, life insurance premiums increase with age, so the earlier you lock in a rate, the more affordable it can be.

Some plans even let you cancel later, so it’s possible to get out of a policy if at some point you decide you don’t want it anymore. The one thing you can’t do is go back in time and purchase a new policy 10 years down the road at the lower rate that you’d be able to get at this age.

If you’re starting married life with fewer financial burdens – e.g. no house, no kids – taking on a small monthly premium won’t be a significant burden on your bank account now, but it will set you up with more affordable premiums for the future when you may face more financial stress.

Purchasing life insurance when you’re healthy also makes a lot of sense as it guarantees you’ll be covered no matter what happens to your health in the future.

When it’s not always happily ever after

When you’re preparing for your wedding day, it’s natural to think your love will last forever. Unfortunately, divorce becomes a reality for some couples, and not all of them are prepared for the financial fallout.

report from the BMO Wealth Institute found that 70% of surveyed Canadians are financially unprepared when going through a divorce. What’s more, divorce can impact women particularly hard: 43% experienced a substantial decrease in household income after their marriage ended.

We hope you never have to go through a divorce. If you do, however, it’s critical to examine your current life insurance policies and any spousal coverage benefits to which you may be entitled. Your beneficiaries – the people you’re leaving money to – should also be re-examined.

Building a shared future together

Marriage is about building a life together with someone you love. And while it may not sound romantic, that includes a financial life.

Chances are you will need to buy life insurance at some point as part of your shared future – particularly if plan to have kids one day. So, as you start building your new married life together, keep in mind that this might also be a good time to apply for life insurance so you can take full advantage of your youthfulness and good health.

For a conversation about how to set your young family on the right financial path, contact us at info@rubachwealth.com or at 647.349.7070.