While some are panic-buying a year’s worth of toilet paper, others are becoming anxious about spending. What happens if your next paycheque is reduced, or you don’t get one at all? Most millennials have savings, but 58% of those savings accounts are under $5,000. With the stock market in shock, what does it all mean for retirement accounts, stocks, student loans, or even mortgages? Should people be watching them carefully, or selling? Should we reevaluate our RRSPs or even stop investing for a while?
It’s a lot to think about, and it’s important not to panic. Ahead, we asked financial experts about how to cope with financial anxiety during a pandemic.
Should You Check Your RRSP?
One of the most visible online responses to the stock market has been people getting alarmed about their RRSPs and TFSAs. Should you reallocate your assets? How could this affect your retirement?
Even though you might want to assess the damage to your portfolio, experts say that the best thing you can do for yourself is leave it alone. Think of your investments like a rollercoaster, where the stock market goes through ups and down depending on what’s happening in the global economy. You don't want to jump off in the middle of the ride.
Younger investors, especially those fairly new their careers, have plenty of time to ride through the ups and downs of the stock market, making up any losses that happen during downturns like this. When you see stock prices drop during times of crisis, that doesn’t accurately reflect the value of that investment. It just means that millions of people are freaking out and pulling their money out of that investment, making the “value” of that stock or fund go down.
Seeing the number in your RRSP account go down can be scary. But, don’t let fear cloud your judgement. If you look at any historical chart tracking the Toronto Stock Exchange since the Second World War, you’ll see that there were fluctuations over the years, including dips after the dot-com bubble burst 20 years ago, and the housing crisis 10 years ago. But, if you step back and look at it as a whole, the market trends upwards.
Once this coronavirus scare blows over (which it will), and once we’re back to business as usual, those who held onto their stocks and investments will be able to recoup any losses they might have incurred during this downturn. A study by Fidelity found that the best-performing investment accounts were the one that people forget their password for, so they weren’t able to mess around with them. As long-term investors, you gotta learn to ride the rollercoaster, and think big picture. We might be in a slump, but we’re trending upwards, baby.
What Should You Do About Stocks?
If you’ve heard the saying, “Buy low, sell high,” then guess what’s happening in the stock market right now? A sale. In a down market, stocks are cheap, but expected to go up in price and value. Remember that upward trend? If you’ve got any cash stowed away, consider using it to get yourself some low-cost, passive index funds. These are basically “baskets” of stocks packaged up to give you a nice, diversified investment portfolio, without the high management expense ratios (MER), or fees of professionally managed funds.
Buying funds instead of individual stocks allows you to invest in a variety of companies, sectors, and markets, without having to do all the research involved with buying individual stocks. And, in case one industry takes a downturn, like the housing market a decade ago, or the tourism and hospitality industry right now, hopefully your other investments can offset some of the losses and dampen the financial blow. Adding money to your RRSP or TFSA right now wouldn’t be the worst idea, either.
What Do Low Interest Rates Mean For Millennials?
On March 4, the Bank of Canada (BOC) cut interest rates by half a percentage point for the first time since 2015, and again down to 0.75% on March 13. This change by the BOC influences other interest rates, including those for consumer loans, mortgages, and even high-interest savings accounts. Those with a fixed-rate mortgage won’t be affected as their interest rate is locked in for the duration of their term. But, with a variable-rate mortgage, your interest rate will change with the market. This may affect the interest you pay on your mortgage and your monthly payments, depending on whether you have a traditional or adjustable-rate mortgage.
But what does all this mean if you’re not on Bay Street and you’re not a homeowner with a mortgage? Thankfully, this interest rate drop means variable interest loans like your student loans, credit card, or a personal line of credit will have lower interest payments, making the cost of borrowing less expensive. Consider refinancing your loans to secure this lower rate, and save on your repayments. The downside, though, is that lowered interest means less money earned in your savings accounts.
Should You Increase How Much You Save?
Financial expert Paco de Leon of the Hell Yeah Group and Priya Malani, founder and CEO of Stash Wealth, a financial planning firm focused on millennials, point out that an outbreak immediately reminds us of how important it is to save a little bit every month, if you’re able to. Regardless of your job, industry, or what’s happening in the world, there’s bound to be a time where we’ll all need to tap into our savings to tide us over during a rough financial patch. Whether that’s a family emergency, job loss, or something as random and wild as COVID-19.
Having 3-6 months of expenses stashed away in a high-interest savings account (even if the interest earnings go down), or a GIC (Guaranteed Investment Certificate), is critical. You need the money to be liquid, or easily accessible for when you need it most. And, no, rock bottom flight deals right now don’t count. And, don’t worry that these accounts don’t earn you as much return as investments in your RRSP or TFSA. All that matters is being able to quickly and easily withdraw money in case of an emergency. This isn’t an investment, it’s a safety net to fall back on.
“There’s so much in our lives outside of our control, and we want to do everything in our power to feel like we have some autonomy in an uncertain world — what’s happening right now is a perfect example of why it’s important to be saving a little bit with every paycheque,” says de Leon.
“If you’ve been procrastinating with your savings, set up an automation to stash money away in a dedicated Emergency Fund — that’s the best place to start,” says Malani. “There are two ways to save more money quickly: earn more or spend less. Earning more is a lot more fun. You could take up a side-hustle, sell stuff you have laying around the house."
How Can You Manage Your Money Anxiety?
“There have been hundreds of events over the history of the market that have negatively affected investments in the short-term, but from a long-term perspective, the markets have overcome all of these obstacles and have continued to soar higher,” Malani reminds us. “As long as you’re investing for the mid or long-term, you should turn off the TV, hit happy hour and not worry about your investments.”
“You know yourself best,” says de Leon. “You probably know what you can do to keep yourself calm and self soothe if you’re feeling anxious. The thing about anxiety is it’s both in your mind and in your body, so I don’t know how much thinking can help ease anxiety.” She recommends working on being physically present instead of getting caught up in your mind, whether it’s by meditating or exercising.
She also suggests avoiding social media, where everyone is talking about the outbreak. “Social media always makes me feel anxious — I think it’s like how the smell of cooking food makes me feel hungry. In my house, we try to stay off of our phones by doing puzzles, baking, reading books and magazines, tinkering on projects that require your hands, like playing music or drawing.”