Our world is embroiled in a “do you remember when?” event. COVID-19 will have long-lasting ramifications. The rules have changed, and still continue to evolve. So…what’s next?
Wisdom from Stockdale
To set the mood, I’d like to invoke the paradoxical wisdom of James Stockdale:
- “Never lose faith you will prevail in the end.”
- “Maintain the discipline to confront the most brutal facts of current reality.”
The Coronavirus pandemic will pass (given many months). Don’t lose sight of that. In time, we’ll look back on the current turmoil with the calming benefit of hindsight. Life will continue on, and lessons will be learned.
However, you must maintain the discipline to take the blows as they come. And man, they are coming fast and heavy. Our current reality is changing by the day, if not the hour. The government is struggling to keep up with what’s next. Businesses are shutting down (and the market is responding). The positive COVID-19 cases grow and grow. You cannot ignore that fact.
The paradox of Stockdale’s advice is finding the right balance between long-term optimism and present-day stoicism. It can be challenging, but it’s necessary. Abandoning either is a recipe for negative outcomes.
Stay strong, reader.
If you aren’t intimately familiar with social distancing by this point, I’ll direct you to these fantastic articles:
Coronavirus will not be the end of the world. But it’s also not the status quo.
And if you’re still convinced that this is just an overblown seasonal flu, there’s not much I can do other than say, “Please listen to these really smart doctors who have been studying viral infections their entire lives!”
- Michael Osterholm, with 40+ years of epidemiology and infectious disease experience
- Dr. Nicholas Christakis, physician and Yale professor specializing in network spreading–including infectious disease networks
- Dr. Amesh Adalja, Senior Scholar at the Johns Hopkins University Center for Health Security. His work is focused on emerging infectious disease, pandemic preparedness, and biosecurity.
What’s next for business, and the prisoners’ dilemma
Government agencies are both urging employees to stay home, and asking non-essential businesses to temporarily shutter their operations. But it doesn’t feel like everyone is listening. What’s up with that?
In my opinion, it’s a quintessential example of the famed prisoners’ dilemma–a well-known paradox in economics and game theory.
Imagine two prisoners arrested for robbery. They allegedly are part of a large syndicate that is stealing toilet paper from local Wal-Marts. The district attorney comes into jail to offer the prisoners their plea deals. Their options are as follows:
- If neither prisoner speaks up, the DA can only assume the prisoners are low-level henchmen, not the syndicate ringleader. Therefore, they’d each get one year in prison.
- One prisoner can get immunity–no sentence–if he implicates that the other prisoner is the ringleader. The ringleader would get a three-year sentence.
- But if both prisoners claim that the other is the ringleader, the DA will have no choice to give both prisoners 2-year sentences.
Think about what you’d do. If you remain silent, you run the risk that the other prisoner blames you. So you should speak up!
But the other prisoner is thinking the same thing. And if you both speak up, you would simply be better off both remaining silent. So you should remain silent! …And you’re back at the beginning of the loop.
Should a business close?
In my opinion, our business community faces a similar paradox.
Closing the doors is akin to remaining silent. It only benefits you if the others do it too. If the rest of the economy stays open, a closed business will be left far behind. And for employees of those closed businesses, how do you overcome to lack of a paycheck? You don’t know what’s next.
But if all businesses operate at their status quo, coronavirus will create a larger long-term cost than any short-term closing would. We have models of what happens if we ignore the coronaviral threat. And employees will run the risk of a loss more dire than a few paychecks.
The optimum choice for all, therefore, is for all to cooperate and close.
Will it happen? It might take government intervention. They can act as the middle-man (jailhouse snitch?) that communicates between the business community. We’ll see what’s next.
Priorities: health, home, people
If you find that your personal finances are going to be stressed in the coming months, the following information is tailored for you.
First, re-assess your priorities. If it helps you brainstorm, my first-tier priorities are:
- Home. My partner and I have to keep a roof over our heads.
- Health & Sustenance. Food and water and health insurance.
- Utilities. Electricity and heat.
All else falls further down the priority list. For now, I’ll assume your priority list is similar to mine. So if your budget is tight (or about to get tighter), consider the following:
- Mortgage lenders and landlords may give you reprieve from your monthly housing payments. The only way you’ll find out is if you ask. You may even have a “hardship provision” in your agreement/contract that grants you reprieve. And here are a couple additional useful resources:
- Many communities are banding together to help with food and water needs. Do you know what options your community has? Otherwise, if dollars are tight, you can consider lowering costs by optimizing your calories per dollar.
- In dire straights, remember that under the federal EMTALA rules, emergency departments must provide you with services regardless of ability to pay.
- Many municipalities forbid shutting off utilities to a residence if someone if living there. Do you know what your utilities’ rules are? Keep yourself and your loved ones healthy and nourished, and your local government will keep the heat on. Just make sure you double-check that your local government has your back.
Other expenses and the emergency fund
After the bare essentials are met, you’ve got to pay the other bills. If you’ve got the financial bandwidth, paying all your bills is always a good thing to do. But let me lay some questions on you:
- Would you rather earmark July’s rent, or pay May’s credit card bill?
- Would you rather have June’s groceries, or make April’s student loan repayment?
Of course, you want to do all those if you can. But what if you had to choose? You might end up making some “bad” personal finance moves (like missing a repayment) in the near-term in order to ensure you make it through this crisis without long-term hardship (like being evicted). Credit scores can be re-built. They fall lower on the priority list than health, food, shelter.
Perhaps the best way to make this kind of decision is through an honest budgeting activity.
- How much money do you have?
- What will you earn in the near-term?
- How reliable is your income?
- What are your future expenses? Bills? Can you get anything for cheaper, or for free?
- How long into the future will your money last?
With a healthy budget and bills paid, you’d normally think about spending on comforts or luxuries. This is the whole idea behind the fulfillment curve.
But not if the rules have changed.
If your employment appears fairly stable in the short-term, consider bolstering your emergency fund. Why? If the past three weeks are any indication, the future will be unpredictable.
One month ago, that kind of future probably felt pretty foreign. But in the present reality, the mantra “hope for the best, prepare for the worst” seems, well, kinda reasonable. Build up your emergency fund in case a future day comes when you need to rely on it.
Unemployed – what’s next?
Many individuals will struggle maintaining employment in the next few months. So, let’s assume you’re laid off. What’s next?
Before leaving work for the last time, make sure you understand the terms. Will you be collecting an additional paycheck? Is there any severance pay involved?
Until otherwise directed, one of the next steps to consider is filing for unemployment benefits. With many other people in similar situations, there are likely to be governmental delays in processing these benefits. Prioritizing this step will ensure you get benefits as soon as possible.
Next, look into your insurance. COBRA coverage ensures that employees who lose their jobs can maintain their present health insurance plans for themselves and their families. However, that ex-employee has to pay the insurance premium. Ouch.
As an alternative, you can consider looking in government-sponsored healthcare options. Getting laid off does make you eligible for a Special Enrollment Period. That’s a silver lining.
After that, there are a few possible paths. Some involve looking for new employment. Others involve hunkering down and waiting for your employer to (hopefully) re-hire you. I suggest you cross that bridge when you come to it.
Investments: leave them alone (if you can)
I wrote a lot about investing in the past two weeks. They’re important articles, if I may say so. I think they’ll give you some faith to “stay the course,” despite not knowing what’s next.
For today, I want to bring you two wonderful quotes from John Bogle, the father of the index fund.
“Don’t do something. Stand there.”
My rule — and it’s good only about 99% of the time, so I have to be careful here — when these crises come along, the best rule you can possible follow is not “Don’t stand there, do something,” but “Don’t do something, stand there!Jack Bogle
If you’re like me, your first reaction might be, “If this isn’t a ‘1% situation,’ I’m not sure what is!”
But, from an investing point of view, I think this quote is perfect. You see, we are wired to react to stimuli. Crazy event happens —> person feels the need to respond. But with investing, it pays off not to react. That’s what the historical market history shows us. Don’t do something, stand there.
“Small and incremental”
And the second of Bogle’s quotes:
These times of crisis, these times that try investors’ souls, are terrible times to make decisions. If you really have to make a decision, just to keep your own sanity, make it a small and incremental one.Jack Bogle
This quote is a bit of a concession to the first. Bogle recognizes that the advice “don’t do something,” can be very difficult to uphold. We so badly want to do something about a bad situation.
So if you feel like you must make a change to your investments, try to make it a small, incremental change. Your first action shouldn’t be to empty out your 401(k), nor to convert your entire portfolio to gold bullion and pork futures.
Instead, do something small. Make a decision that enables you to “stay the course” as much as possible.
It’s weird writing about money right now.
On one hand, it feels more important than ever. It’s the grease that keeps our systems going, on both micro and macro scales.
But money shouldn’t be a primary concern during a pandemic. Quick Latin reminder: pan- means “involving all members,” as in “We’re all in this together.” Regardless of finances, politics, or any other demographic, we’re all in this together.
One of my readers wrote to me this week, “This is where you need to keep writing.” So I hope this article filled a need in your life right now.
What’s next? I’d love to hear back from you.
Thanks for reading the Best Interest.