How Do You Protect Your Personal Finances During the COVID-19 Pandemic?

How Do You Protect Your Personal Finances During the COVID-19 Pandemic?

There are steps to take, and we will lay them out for you.

The spread of Coronavirus Disease 2019 (COVID-19) across the globe has caused huge volatility in the global markets. The markets seem to be changing every hour these days, going down then swinging back up. The financial implications of COVID-19 have been monumental on Canadian stocks thus far. As we’ve all seen, investors are becoming wary of seeing their investments drop lower and lower as the days progress.

Canadians are witnessing, in real time, the biggest market fall since the financial crisis of 2008-2009. But, investors have learned from that and we have steps to take so that Canadians can protect themselves, and their personal finances, against whatever may still be coming.

 

Investments

Since the financial crisis in 2008-2009, the Canadian stock market has been rising steadily. It has been one of the longest bull runs in history and during this time volatility was low. We have learned from history that markets go on these types of bull runs for a number of years, become overpriced and then a correction happens.  

Bear markets can be frightening for investors, but as we can see from the below infographic on the S&P 500 the market has always recovered. Plus, historically, bull markets have lasted far longer than bear markets.

The COVID-19 pandemic has taught us that people need to understand their risk tolerance and invest accordingly, because there will be more bear markets in the future. Many have also now learned that they want exposure to equities as the bull markets can last 10+ years, but they also want their principal protected. Luckily, there are structured investments that give just that, principal protection with exposure to the upside of an equity index.

 

Debt 

The Bank of Canada has slashed interest rates. Prime has lowered a total of one (1) percent since the beginning of March, and the variable rate has decreased by about the same because of it.

Mortgage rates have followed suit and dropped as well. Canadians can find some institutions offering five-year fixed mortgages below 2.5 per cent. This is a good time to look at options regarding existing debt, while the interest rates are this low.

Everyone should be aware that if COVID-19 does lead to a recession, banks and institutions may be more wary and cautious about lending money, due to the increased risk. If you know now that you will be needing a loan or line of credit, take this time to have a call with your advisor to discuss your options, and what the best next steps are.

 

Income Tax

The Canadian Revenue Agency has extended the personal income tax return deadline from April 30 to June 1, 2020. If you are self-employed, you have until June 15, 2020 to file your personal income taxes. Also, no interest will be charged on payment of tax owing until August 31, 2020, which is the extended deadline for paying any tax owing. In addition, businesses will also not have to pay interest until August 31, 2020 on corporate tax balances.

 

Retirement

COVID-19 has caused the Canadian economy to slow down. Currently, there are a large number of businesses closed and this could lead to a more prolonged downturn in the economy. If this is the case, there will be an increase in job losses. If you are thinking about retiring in the near future, you may be more at risk. If you can, be sure to have open communication with your company during this tough time. Prepare as much as you can, in case you are forced to retire before you were planning to. 

If you are a new or soon-to-be retiree, you may be worried about your retirement investment portfolio due to the drop in the market. The main thing to think about is how much you will need for the next year. Ideally, retirees should be withdrawing three to five per cent of their portfolio for the first chunk of their retirement. This is a good basis to consider if you are newly retired. Once the market readjusts, you can reassess your needs and make any necessary changes.

Currently, the Toronto Stock Exchange has a dividend yield of about three (3) per cent. The weighted average yield to maturity of the FTSE Canada Universe Bond Index is about 1.8 per cent. Every investor’s portfolio will differ. Dividends can be reduced during a recession, but the point is that a retiree should, hopefully, only need to use a small per cent of their investment capital in the next 12 – 18 months.

 

Young Savers and Investors

We want to educate new investors on how best to handle this stock market correction and economic downturn. This is not the time for making knee-jerk reactions and selling. This is, in fact, a time for reflection and buying if you are in the position to do so. If you are new to the stock market, your best bet is to stay patient and do your research. Five years from now, you can set yourself up for great success by educating yourself and purchasing stocks during this opportunity.

When share prices have lowered as much as they have, in some cases, you can get close to three times the amount of shares you could have with the same dollar just three months ago. This type of market should encourage you to stay on track with your investment plans and even allow you to become more aggressive in your investing.

 

The Bottom Line

The current COVID-19 pandemic we are experiencing can be very nerve-wracking because we don’t know what to expect or how long it will last. When making investment decisions, it is important to stay calm and, if you are not entering retirement, look at this time as an opportunity instead of a barrier. During these times, everyone should take the chance to understand their risk profile, protect their personal finances with the tips and information in this blog post, and set them and their family up for success.

 

Brian Moylett is the Sales Director at Wisdom Structured Investments which offers principal-protected investments (by a Canadian Schedule 1 Bank) that track an equity index.

 

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