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#2 Creating Wealth: Managing Your Money and Mindset During the COVID-19 Pandemic

Updated: Jun 21, 2021

Creating Wealth is an in-depth conversation between Bill Taber, an experienced financial advisor, and his millennial daughter about personal finance, investing, and financial planning.

Episode Two - Managing Your Money and Mindset During the COVID-19 Pandemic: The COVID-19 pandemic has raised a series of questions of how people should approach personal finance. In this special episode, Bill and Anastasia discuss how their quarantines are going, how people should handle their finances during this time, and provide perspective on how this economic crisis relates to past ones.

Anastasia: Welcome to Creating Wealth, I’m Anastasia.

Bill: Hi, I’m Bill.

Anastasia: We are starting a podcast on personal finance. We also happen to be father and daughter. My dad has been in the financial advisory business for decades, working at other companies, until founding his own investment advisory business in 1998. I feel like the things I have learned from my dad have set me up in many ways for financial success. I have also heard lots of people, especially millennials, wonder why personal finance isn’t a thing that is taught in schools. We learn, and maybe unlearn, how to solve for x, but we don’t know how to budget, we don’t know how to do our taxes, how to save, and live a financially abundant life. We hope this podcast will help fill in some of those gaps for you. We welcome our listeners to ask any questions they want to know the answers to, and maybe we’ll base a podcast episode from it. Please enjoy!

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Disclaimer: The views expressed today are our own, solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investment strategy. The views are subject to change and are not intended as a forecast or guarantee of future results.

Anastasia: Today’s episode we’re going to talk about coronavirus, thinking about your finances during coronavirus. First of all, Dad, how has quarantine been going for you?

Bill: We have been basically sheltering in place for years with a business operation that works from our homes, so cloud computing has enabled us to do what most people are just trying to get used to now.

Anastasia: So you’re well-prepared.

Bill: Yeah, we’re extremely well-prepared, way ahead of the curve on it. But I would say that four weeks into this, the fact that we are at home so much and we don’t have the ability to go out and do things like, we liked in the past is beginning to get a little bit wearing and so we’re just dealing with it. I think everybody is feeling it.

Anastasia: Yeah, I think everyone is stressed out at the grocery store trying to maintain some kind of distance from each other and then I have to double back, and then I don’t know about you, but at my grocery store they have arrows telling you which way to walk down the aisle. (laughs) It’s just, it ends up being like a two hour ordeal—

Bill: --Yeah some people look at you like, “You’re going the wrong way,” or you look at them like, “You’re going the wrong way,” so—(laughs)

Anastasia: (laughs) It’s also, it’s just so strange, like time has definitely become meaningless. I forget what day of the week it is or how many days we’ve been doing this. I think we’ve been quarantining since March 16th and that means it’s been, like, maybe 30 days since we haven’t seen anyone else besides each other and my two cats. (laughs)

Bill: (Laughs) But I bet your cats are happy.

Anastasia: Oh, they’re so happy.

Bill: Well, on the good side there’s more pet adoptions going on now, so that’s good.

Anastasia: That’s true. Yeah, there’s been a lot of, people have been open to fostering and so there’s basically no pets left to foster. Or at least that’s what I’ve heard from my friends who work or help volunteer at shelters.

Bill: Awesome.

Anastasia: So that’s really positive. Yeah, okay, so I think it’s important to give people context to what is happening, because we’re seeing just, kind of depressing numbers come out of the news every day. We’re up to like 22 million unemployed and that feels pretty scary because it feels, I mean it is unprecedented. We haven’t—no one alive has been through this, this quite dire situation, so people will probably be interested to know your perspective on this and how this compares to what happened in 2008?

Bill: Yeah, in 2008, it was a near collapse of the world’s financial system. It was a situation where there was a tremendous amount of debt, there were certain structures within the financial system that were near collapse. It took a long time to basically work through those weaknesses and for the economy to recover. In fact, pretty much over the last ten years. This time around, it’s different because the economy was voluntarily shut down in an attempt to keep all of us safe. And so, a lot of people will be able to basically go to work once they decide that the virus has toned itself down a bit and they can go back into the work environment. That’s not true with every business, obviously. Some businesses will go out of business as a result of this. But for the bulk of our workforce, we’ll be able to get back and get the thing humming fairly quickly.

Anastasia: Yeah, the economy was strong heading into this, so it still has the potential to be strong again, it’s just we’ve hit the brakes all of a sudden on everything that’s going on.

Bill: Yeah, it’s likely to, if you want to look at it in terms of a, you’re standing looking at a valley and you’re looking to the opposite side, we’ll start to see a path towards a more normalized economy, probably by early next year or early 2021. And then certainly by 2022, I think we’ll be beyond this. But in the meantime, there’s going to be fits and starts and it’s all going to be dictated by the virus, by how well we are doing social distancing to keep numbers down and allow everybody basically to go back to work.

Anastasia: Yeah, and so along those lines, what should people be doing with their financial accounts during this?

Bill: Well, if people have not had their incomes or their jobs disrupted by this, they really shouldn’t be doing anything different. The fact that a lot of people have 401(k) type plans, retirement plans, employers are putting in a match, some of them have stopped that match because of the effect on their business. But if the employer is doing it, they should just continue doing it. And there’s one really strong reason for doing it. It’s a wealth building technique that works perfectly over a period of time and it’s called Dollar Cost Averaging. And that’s if you’re putting, say, two percent or four percent or five percent of your monthly pay into an investment that has variable returns to it, when the markets are up, that, say, five percent of your pay is a consistent amount, that because the market is up, it buys fewer shares of whatever investment that you’re going into. Now, conversely, when the market goes down, and it did go down 35 percent here a few weeks ago, you’re then using that five percent of your pay to buy many more shares than you were when the market was up. And so it’s a discipline that basically forces you, just by mathematics, to buy more when the market is low, and buy less when the market is high. And if you continue doing that over a period of time, that in of itself will be a very powerful technique for building your wealth.

Anastasia: So there is actually a lot of benefit when there’s a sharp market downturn like this?

Bill: Yeah.

Anastasia: Like if you’re continuing to put money into it, then yeah, it makes sense that you’re able to buy more than you usually would.

Bill: Yeah, because long term the average of financial markets has been up somewhere around an eight percent level per year. And so when the market gets really cheap, sometimes it doesn't feel like the best time to buy and your emotions are saying, “No, I’m a bit fearful about adding to it.” But using dollar cost averaging forces you to put in the amount of money that will allow you to buy more at the bottom and less at the top.

Anastasia: So you’re saying just to keep the course.

Bill: Yep, stay the course with the program. Because there’s an axiom: Until you start investing, time works against you, but after you start investing, time works for you. So the fact that many of our listeners might be in their 20s, or 30s, or early 40s and they’ve got decades before they plan to start using some of this money, they’re using a very powerful compounding of money technique to be able to build wealth. And stopping it at this point, or having to draw on it to a significant extent to cover current expenses, works against that ability to build your wealth.

Anastasia: That makes sense. So this is something we talked about in a podcast we’ve already recorded but we’re going to publish after this one about what to do with the money outside of your retirement savings—where should we put that money now?

Bill: It can go in anything that basically allows the money to be safe and to be available when needed. That pretty much comes down to the alternatives of putting it into a bank, like a savings account, or putting it into a money market account at a bank, which essentially is available or liquid funds, but maybe pays a little more interest, versus the third alternative which is something called money market funds. And money market funds are generally safe, but they are not guaranteed by the U.S. government under FDIC insurance like banks and money market accounts are. But they are generally safe and earn even a little higher interest rate than that. So again, the key is that you’re not going to get a lot of interest today because the Federal Reserve here just in the last month or so reduced interest rates again, by a full percentage point, almost down to zero.

Anastasia: Yeah, I’ve noticed that my online savings accounts that usually have a pretty healthy percentage have been just going down, like for the past couple of weeks, past couple of months. I used to get over two percent, and now I’m down to 1.5.

Bill: Well, if you’re still getting 1.5, that’s really good. I wouldn’t expect that to last a whole lot longer. You know, and the reason being the Federal Reserve is charging zero interest rates to the banks and the returns have lowered, so it would be common to get maybe four tenths of a percent of six tenths of a percent, but, you just basically can shop around but look for those different three alternatives to see where you can get the best interest and still have the money be safe.

Anastasia: Yeah, and ideally if you still have this income coming in, that you’re saving part of it to—if you don’t have an emergency savings account built up yet—that you’re saving part of that money to that account.

Bill: Yeah, you want to make sure that you’ve got at least six months worth of living expenses. Eight months would even be better. As far as people that are furloughed, if some of them have questions about whether their company or their industry is vulnerable at this point, I think from the standpoint of the virus the companies and industries can be viewed from three different buckets. One would be to look at companies or industries that are actually not hurt or even helped by this. For example, companies that make test kits. Companies that are seeking to develop new vaccines, certainly are helped by it. The second category would be companies that were initially hit hard but really have no long term damage. And I would say credit card companies like Visa and Mastercard would certainly fall in that category where there’s fewer transactions going for them right now, but when the economy starts back up again, they’ll do just fine. The third bucket would be companies that are structurally impaired where their revenues could drop long term and it could stretch their horizon for their recovery back to months or even years. Probably the best example of that would be travel companies and airlines. Airlines have lost 95 percent of their revenues. They’re going to need some serious help to get back on their feet.

Anastasia: You mean from the government, or—(laughs)

Bill: Yeah, potentially from the government, yeah, and that’s a political thing as to whether that happens. To answer a question about a specific company—their company—is their company a public company or a private company? If it’s a public company, then there are financials available that they can take a look at—online even—and find out how many days of cash the company has. Days of cash is the same concept as an emergency fund—how many weeks or months can you go without revenues before your business stops. The other element, besides cash, would be, “What was their level of total debt to total capital?” Some companies don’t have hardly any borrowings. On average, companies have about 35 to 40 percent debt to their total capital, which is a reasonable amount. It allows them to do things they want to do now that they would not want to put off until later. But they still have the ability to earn and make profits to earn their way out of paying that debt off. But it’s not so high that it’s dangerous that when the economy would have a turndown that they could be on the verge of not being able to make a debt payment and then have to go out of business. And that debt to capital ratio would be eighty percent or higher. Another example of that is Boeing. They have a 100 percent debt to capital ratio, but again their situation is they’re one of two major airplane makers in the world, and it’s unlikely that the U.S. government is going to allow them to go under. So that’s the other element. Now as far as if you work for a private company, does management share information with their employees about how the company is doing? Some of the best companies out there will put out, in not specific terms but fairly general terms, as to how they’re doing, so that it helps let the employees know that their job is safe and that they’re not going to be laid off in a period of days. The restaurant industry went through this big time because most restaurants don’t have much cash at all and people were immediately let go. But if the management has been forthright in talking with employees, say, on a quarterly basis, or at least a couple of times a year as to what the financial situation of the company is, then it really puts the employees’ minds at ease, that they will not be losing their jobs. This is particularly true right now with hospitals. Hospitals in general across the country have a large amount of debt to capital and they don’t have a lot leeway, in essence, when they’ve been told to shut down elective procedures and to keep people out of the hospital unless they’re COVID-related. So any organization that has a reasonable amount of cash can go to their employees and say, “Yeah, this really hurting us but we can get through this and get through it without having to lay you off.”

Anastasia: So, I guess the final question can be: What should people pay attention to and what should they not pay attention to during this pandemic?

Bill: Well, I can tell you what they should not pay attention to and that’s a lot of the quote unquote news that’s on cable. It’s very negative. It’s not actually news, it’s commentary.

Anastasia: It’s anxiety-inducing.

Bill: It uses words like, “What should we be afraid of?” Because fear sells. (Laughs) And they know that. I can watch a cable news program for ten minutes and my anxiety level can almost go off the chart. And I’ve learned virtually nothing that was helpful to me. It’s also interesting how I can watch, say CNN and MSNBC, and then turn it over to Fox, and they’re talking about the same topic, but it’s a completely different commentary, it’s a completely different take. So it’s like—and I’m showing my age by doing this—but I grew up in the age of Walter Cronkite. He was the foremost news reporter in the industry for decades and when he came on television and he said something in a news report, you believed it, because it was based off fact.

Anastasia: --Objective—

Bill: It’s something that could be verified with multiple sources. And if they didn’t have that, that verification, then they wouldn’t even put it on the air. Today, it’s commentary and in some cases, propaganda. So don’t pay any attention to it. In fact, turn it off, you’ll just feel better, as a result of it. What should you pay attention to? There are sources of information out there that really don’t have incentive to sell you something. So you have to always just kind of keep your cognitive abilities sharp and say, “What is the bias here?” Our part of the industry is called “Registered Investment Advisors.” We are fiduciaries, which means that we have a legal obligation to put our clients’ interests ahead of our own. We are legally bound to act in the best interest of the client. And so advice from Registered Investment Advisory firms would be one source that you could go to at this point.

Anastasia: Yeah, and then maybe print journalism for—(laughs)

Bill: Well, print’s possible but there’s probably, what, six or eight or nine major newspaper chains in the country and some of them are owned by people that definitely have strong editorial viewpoints to get across, so that has to be considered as well.

Anastasia: So the CDC (laughs). Where do people go? (laughs) Just don’t read the news. Don’t watch it, don’t read it, just stay away (laughs).

Bill: (Laughs) If I could talk just a little bit about the comparisons to other downturns. This voluntary shutdown of our economy actually induced a recession in this country, the first recession that we’ve had since 2008/2009. And a typical recession takes the markets down about 30 to 35 percent. And that’s exactly what happened in just a very short period of time. We’ve now gained back about half of that. I don’t think we’re out of the woods yet on it for sure. But by comparison, the Great Depression, which basically hit between 1929 and 1932, but lasted until 1937, had the markets down 80 percent. In 2008/2009, the Great Recession we talked about, markets were down 50 to 55 percent. There was another recession in 1974 when oil prices tripled and it shut down a lot of economic activity: markets were down about 50 percent. Another one in October of 1987 which was basically the market reacting to being severely overvalued, was down about 35 percent. And so, we’ve already experienced what may have been the low in the markets. But just by virtue of this virus being around and taking time to work its way through the economy, work its way through the country. I think what’ll happen is that it will come back in months ahead, perhaps in the fall, in the winter, maybe in the spring, but it’ll be with a diminishing impact, which should help our economy over time. So again, I don’t think we’ll really get through this until we’ll see a path to a strong recovery by 2021 and I think we’ll certainly be through most of it by 2022.

Anastasia: (Sighs) That’s like, both good news and terrible news. (Laughs)

Bill: (Laughs) Well, patience is a great virtue. (Laughs) If you’re not killing the person that you’re sheltering in place with. (Laughs)

Anastasia: (Laughs) Yeah, make sure (laughs)—don’t come out of this accused of murder.

Bill: There’s probably a better way of saying that (laughs) other than saying you’ll kill the person (laughs).

Anastasia: (Laughs) Nope, that’s going in the podcast now (laughs). Yeah, I mean, this will be an important lesson for a lot of people and it’ll be a resetting for a lot of people. It’s also, when it comes down it, it’s like, what’s the most important thing (things) in your life? So, lots of family time, lots of cooking at home, and spending time at home. Not being busy constantly 24/7, which is, I think, what American workers are used to is having a huge focus on productivity. So this is kind of a chance for people to step back and figure out what is actually most important in their life. What do they value?

Bill: Yes, and with the thought that this too shall pass. We will get through this.

Anastasia: Yeah, and we can, and we will! Alright, sounds great! This has been a longer than usual podcast but I think it’s important for people to hear what you’ve said. And I guess that’s it, thanks Dad!

Bill: Thank you!

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Anastasia: If you liked our podcast, please recommend it to your friends, leave us a review, or drop us a note. Thank you very much for listening and joining us on the path to financial abundance.

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