On March 16th, the Dow Jones dropped almost 3,000 points — the largest point drop in history. It closed with another drop this past Monday, this time nearly 600 points lower. Everywhere, people seem worried about not just their health amid the spread of coronavirus, but their money, too. The two are inextricably tied, after all, especially in a country without universal health care or federally-mandated paid sick leave.
While some are panic-buying a year’s worth of toilet paper, others are becoming anxious about spending. What happens if your next paycheck 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 401(k) portfolios or even stop investing for a while?
Should You Check Your 401(k)?
One of the most visible online responses to the stock market has been people getting alarmed about their 401(k)s. Should you reallocate your assets? How could this affect your retirement?
But 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:
This goes double if you’re young and not very far into your career. “If you aren’t planning on retiring in the next few years, there is no need to worry about your 401(k) balance,” says de Leon. “You have plenty of time to ride out these ups and downs.”
Malani agrees. “Watching your accounts go down in value is scary — it’s true. It makes people get super emotional (understandably) and unfortunately emotions and investing DO NOT mix. One of our favorite studies was put out by Fidelity, and it found that most people’s best-performing investment account was their 401(k),” she says. “Because most people forget the password to their account! When you forget about your investments, they usually do better than when you fiddle with them. Our motto is to buy right and sit tight. And remember, even if your account value goes down, you haven’t actually lost anything unless you sell. If you’re a long-term investor, which most millennials are, resist the temptation to fiddle with your investments.”
What Should You Do About Stocks?
“Buying individual stocks is a super old school way of investing, not to mention super risky,” says Malani. Instead, she recommends passive index funds, which don’t require micro-management. “They are low-cost and provide the diversification you need to get on track for your goals.”
She agrees with de Leon that if you’re determined to invest, now could be a good time. “If you have extra money laying around and you want to start investing, everything’s on sale right now,” she says. “And just like going to J.Crew when there’s a sale, your money goes further and in the end, you come out ahead.”
“I can’t give anyone investment advice, but general financial wisdom says don’t freak out and sell when the market is down, because you’ll guarantee that you lose money,” says de Leon. “If you have a brokerage account with investments, that money should be ‘extra’ money that you can afford to be taking risks with. Extra meaning, you don’t need it right away for bills or in an emergency. Risk meaning what is happening right now — the market experiencing a downturn.”
“On the other hand, the wisest investors and advisors have been known to say that if you can afford it, it’s smart to buy things when they’re on sale. What they mean is that in a down market, things are cheap and they expect that eventually it will go up in price (and value) later. Did I mention this is totally not investment advice?”
What Do Low Interest Rates Mean For Millennials?
On March 3rd, the Federal Reserve cut interest rates by half a percentage point, the first emergency interest rate cut since 2008 — and there are predictions that the rate could be reduced to 0% soon. Mortgage rates have hit a record low, and refinancing applications have surged. But what does all this mean if you’re not on Wall Street and you’re not a homeowner with a mortgage?
“Yes, lower interest rates means the cost of borrowing money will decrease,” says de Leon. “Anyone with a variable interest loan or credit card might see the amount of interest they pay go down. On the flip side, that means the interest rates in our savings accounts will also decrease.”
“It’s true that your finances can be impacted by interest rates, sometimes for better and sometimes for worse,” Malani says. “When rates are low, it’s a great time to refinance any loans you have like student loans or a mortgage. It’s likely (but not for sure) that the Fed may lower rates once again.” Taking advantage of debt refinancing when interest rates are lower is one way people deal with their student loans, so if it’s something you’ve been considering, it might be time to look into it seriously.
Should You Increase How Much You Save?
Both de Leon and Malani 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.
“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 paycheck,” says de Leon. “When it comes to savings in cash, like CDs or high-yield money market savings accounts, the interest rate is less important than the amount you have saved and whether or not you can access it when you need it. With savings specifically for an emergency, the goal is to have it when you need it, not to make money off it.”
“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.”
She discourages millennials from putting money into CDs, calling them old school. “Also, with rates being low (and likely going lower), CDs are less valuable than they’ve ever been,” she says. “You’d be better off using a basic high-yield savings account at an online bank. The interest rates you’ll earn on these accounts are close to what you’d be getting on a short-term CD, but you get to maintain access to your cash without it being locked away for a few years.”
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.”