The Virtues Of Online Learning: A  Personal View

The Virtues Of Online Learning: A Personal View

 

“Never let formal education get in the way of your learning.”     Mark Twain

 

 

In little over one week, the coronavirus and the need for social distancing marshalled US colleges and universities to adapt online learning for their students. Face-to-face classes were cancelled for the rest of the semester. Some of my classes were already partially online but I am no technocrat. In fact, I usually drag my feet when it comes to emerging technologies of any kind. However, I have more resolve to support my community college students. Students and faculty are all in this together. I want to play my part to help my students.

Resistance To Online Learning Likely To Change

According to Bay View Analytics, 70% of 1.5 million faculty members have never taught a virtual course before. A 2017 Educause survey reported that only 9% of academics prefer teaching “in a completely online environment.” Nearly half of faculty surveyed did not agree that online learning was effective. A notable faculty concern was that virtual classrooms would be less enjoyable than the traditional classroom.

That was my belief as well. Forced into going fully online with little time for formal training was mindboggling. Yes, I have partially online courses for my finance classes but I usually spend the majority of my time face-to-face with students. Fortunately, as a result of teaching partially online classes, I have substantial content–videos, articles, power points–online for students through Blackboard.

The Online Learning Platform

To teach online effectively, faculty and students need a learning management system (LMS). Such a platform must provide two-way communications, deliver content, and assess students’ work. As Blackboard users, a few colleagues had been using the revised Blackboard Collaborate Ultra which is a desirable platform. Years ago,I had been trained on a  more cumbersome platform. Frankly, I steered clear of using it for a variety of reasons. I preferred the traditional classroom where I can easily engage students with active learning exercises, weaving my work experiences into my lessons.

The coronavirus is a black swan event. A black swan event refers to an unpredictable occurrence that has a major effect. As such, this virus has spread beyond what is normally expected during flu season. Its widespread impact is already severe. It has dramatically changing our lives on a worldwide basis. Though it is bringing severe consequences, let us hope for positive results too. The rapid adoption of online learning is likely one of those positive outcomes. It may make resistant faculty believers yet.

Setting aside previous sentiments about online learning, a group of faculty at our college retrained and supported each other as we readied ourselves for the virtual classroom. While it’s too early to give a full assessment of the online teaching experience, I have survived the first couple of weeks. More than intact, I am enjoying the experience.

Preliminary Observations And Recommendations:

 

Flexibility

Faculty and students had no choice but to move their classes to an online learning environment. That is not optimum for anyone. Would many of us have chosen to teach the remaining semester online if we had a choice? I doubt it. However, when it became mandatory to teach our students online, I did not hesitate to use Blackboard Collaborate Ultra. Motivated, I rapidly prepared for the virtual classroom, leaning on some of my more knowledgeable colleagues.

Working from home was easy even with two teens home for distance learning as well. Blackboard Collaborate Ultra has flexible tools controlled by faculty. The platform has  two-way communications with audio and video tools that can be accessible for students. Content can be delivered in real time so that up-to-date articles can be shared and used for discussion. For my digital native students who are accustomed to mobile devices, the change appeared to be seamless.

Longer term, online learning will provide greater flexibility. Those who work or have family obligations are prime candidates for virtual classes. Fully online classes, with broad  offerings will likely be a bonanza in the future.

Great Forum For Interactivity, Especially Quiet Students

One fear I had before moving classes online was the potential lack of interactivity. That has not yet materialized. Classes are fully attended and scheduled for the same time as previously. Interactivity is really strong. Students have the ability to either write questions or offer comments through the chat function or on the whiteboard which I can share. Some of the quieter students are actively communicating for the first time. I can acknowledge them individually by name and it feels more personal.

I recognize that some of this student engagement may be due to the novelty of using this new forum. Additionally, it may be the only chance for students to stay in touch with their friends and classmates because of social distancing. For whatever reason, this seems to be a good experience for students and faculty.

The Need To Be Self-Disciplined

Even before our move to fully online classes, I was aware that students were worried about their abilities to stay on top of my partially online classes. Although I provide a weekly schedule of readings, assignments and exams, the responsibility of being self-disciplined belongs to each individual. I urge students to become more as organized as possible. Faculty should be organized as well. That said, feedback from previous classes has generally been positive from students. They have advised that their experiences were better than expected as the schedule provided a clear framework and expectations.

I provide constant reminders through Blackboard with revised expectations. As we moved online because of COVID-19,  I became more vigilant about providing students with needed changes to our timetable, revising expectations. To my students’ credit, they are proactively asking for due dates for papers and exams. Being online has really matured these students’ attitudes towards education in such a positive manner.

Technology Is Helping To Mirror Traditional Classroom And More

Our virtual classroom can accommodate many of the features I use in the classroom. I use power points and the whiteboard interchangeably. Writing on the whiteboard is a bit slower but clearer for my students. They can’t read my handwriting in the classroom. Plus, the students can have access to write questions or comments on the board. Students can raise their hands, write in “chat” mode or ask through audio. There is a video function but I am not sure I want all of us to share our pajama wear.

All sessions are recorded for my students if they miss anything. Some of them are shopping or helping their families. Office hours can be arranged with students in need. Separately, I use a discussion board that is always on for general questions or comments.

In the upcoming weeks, I intend to poll students using a variety of questions related to the course. This way, I can collect feedback about their online experience as well.

Tailor-Made To Modify Courses

Integrating course materials with relevant current events always enlivens lectures, especially my finance classes. My students are virtual portfolio managers using a simulated stock market game for the entire term. My learning activities are broken down into parts leading to an end result. At the beginning of the term, they pick stocks as we study financial markets, institutions, securities and the Federal Reserve. They create stock market tables to track their picks and relative performance the rest of the term.

Most of the term they use the web to research different topics we cover such as monetary policy, banks, regulation and initial public offerings. They also research their companies reading SEC filings, analyst reports and articles to determine why a stock is performing better or worse than the market. When the coronavirus caused stocks to plummet students were able to learn quickly about the risky nature of stock investments. My lessons were tailor-made for the classroom and even more so as we went online. Online tools accommodate changes very well.

However, it dawned on me as I was reviewing content and assignments to put online that I desperately needed to update the assignments. The Fed was taking massive emergency actions to pump liquidity into our financial system as never before. Yet, their assignments and my lectures were centered on looking at the Fed’s outdated lack of action in January 2020. Instead, I modified assignments to integrate how the virus affected our economy, financial markets and the Fed was acting to soften the anticipated recession.

Teachable Moment For All Of Us

This event was thrust upon us. Preparing for online learning has been difficult for faculty to do on the fly. However, I feel pleasantly somewhat productive and capable on this new system. I have learned new skills and have far more to learn. Students have proven to be adaptable as well. Feedback will be important. My students are having as hard a time as I am worrying about loved ones. That they rallied to come to class is wonderful.

Some Students Have Financial Hardships Going Online

For years, I have encountered students in my classes who were homeless, living in their cars or in shelters. Wisconsin Hope Lab released a study that surveyed 70 community colleges in the US. That study revealed that 14% of students are homeless. Another study pointed to 42% of community college students having food insecurity  compared to 14% at private colleges. Notwithstanding the hardships caused by the virus, community college students tend to have greater difficulties. As such, they may not have access to technology, the Internet or school supplies. Now more than ever, we need to be compassionate for all students.

In recognition of students’ greater financial strain, community colleges need to provide greater support. As a result of this race to move online from the traditional classroom, some students may have been left behind inadvertently. With libraries on campuses shut down due to the virus, some students may not have access to a computer at home or are sharing with others. Previously, they were able to work on school computers. Colleges and universities are providing loaner laptops and other technology provisions to those in need.

Related Post: 10 Benefits When Attending Community Colleges

Online Classes As An Equal Playing Field

Longer term, when the dust settles after this forced online learning experience, faculty will have a chance to redress their online courses with more time, effort and thought. There are added benefits for students who have jobs and other committments. They may prefer the efficiencies of online courses with reduced travel time and costs. Online courses are also eco-friendly, another benefit in congested cities.

For those who prefer self-paced learning, online learning is a more flexible option. For colleges and universities, faculty and students, it may provide a good return on investment. The tools are there. Willingness on the part of faculty to teach more virtual classes may rise. Higher education can play an important role to bridge the gap for those who cannot afford buying their own laptops.

Final Thoughts

The rapid move to universal online learning, replacing the traditional classroom, was a good move. Without online teaching, millions of students would lose essential time to learn and earn credits. Longer term, I believe online learning should have an important place in every school. Those who were resistant, including myself, may find this experience to be very rewarding. At the very least, many of us can say, “Yes, we can teach courses in a virtual classroom.”  Sometimes emergencies prompt us into action. We can surprise ourselves with our readiness to make changes. Online learning may be a tangible benefit brought on by the nasty coronavirus.

Related Post:

How To Prepare For A Coronavirus-Related Recession

Why Unemployment Matters

Why Unemployment Matters

This virus health pandemic now weighs heavily on our economy. Financial markets have been volatile. Leading economic indicators often signal that a downturn is approaching ahead of other cyclical changes. February monthly unemployment figures stood at a low 3.5% but it is a lagging indicator. It’s a backward glance at the past.

Initial unemployment claims now tell a different story, a more realistic one given our recent economic shutdown. The average weekly initial claims for unemployment insurance, a leading or predictive indicator, changed dramatically in one week. Latest figures (released on March 26th) showed a substantial rise to 3.283 million for the week ending March 21 due to COVID-19, dwarfing the revised level of 282,000 last week.

Our previous highest record of unemployment insurance claims was 695,000 in October 1982. Certainly March unemployment rate will look very differen tthan February’s level. We should praise unemployment offices for processing so many claims.

Why Unemployment Matters

Our working lives have been disrupted by the virus. As a result, significant consequential economic effects weigh on households and businesses. When those who want to work are unemployed, families lose their earnings and have difficulties paying bills. They reduce spending to only their essential living needs. Businesses, and our overall economy,  are reliant on the health of our households. Consumer spending accounts for about 70% of our GDP. When they consume, businesses benefit. However, as unemployment rises, there will be ripple effects that plague our economy.

High unemployment rates rise during recessions. It peaked at 10% during the Great Recession and reached  a rate of 24.9% in 1933 during the Great Depression. That said, we never have zero unemployment as companies move their businesses around, close unproductive businesses causing frictional job losses for some employees.  Some economists  suggested that we may experience extreme unemployment levels due to the virus. Hopefully, we can avoid that dire scenario. Ongoing Fed action will pump liquidity helping those who need credit.

How We Are Faring

Some of us are fortunate to be able to work remotely from home. Others are heavily engaged in the healthcare service/equipment sector and are on the front lines of this disease. We have many heroes among us who have become casualties. We need to honor their hard work and sacrifices. Meanwhile, there have been many temporary and permanent closings raising concerns how the virus is affecting employees and businesses, especially small businesses.

The outbreak of virus is already financially stressful for many families. Lost compensation due to reduced working hours or pay will cause hardships. Having an emergency fund will help you pay your living costs but many don’t have those savings. Employers have alternatives to reducing their headcount costs, notably furloughs, layoffs and reduction in workforce. How the loss or reductions of employees is characterized will impact many points such as access to company benefits and ability to collect unemployment insurance.

Small businesses are in a dire situation with governmental orders to close for an indeterminate amount of time. They still have rent and other costs to pay. To help public and private employers with fewer than 500 employees, Congress passed The Families First Coronvirus Response Act effective April 2, 2020.

Unemployment During The Great Recession

We need some perspective on the high unemployment during the Great Recession. Bureau of Labor Statistics reported more than 15 million people in late 2009 were without jobs. Peak unemployment rate reached 10% in October 2009. However, not everyone files for unemployment insurance despite their needs. Some find it a difficult process or are unaware of how to go about making a claim. Some people may believe they are not eligible for these benefits.

Filing For Unemployment Insurance Benefits Is A Right

Many who are unemployed fail to file despite being qualified for benefits. According to a study by the St. Louis Federal Reserve Bank, only half of those qualified for benefits applied in 2008-2009. Some filed later on, however, there were still 200,000 people that didn’t claim money they were entitled to. Apparently that isn’t unusual. From 1988-2011, the study reported that an average 37% did without benefits despite being eligible. The process is cumbersome as I can recall from my own experience.

Claims for unemployment insurance will substantially ramp up. Make sure to take advantage of these benefits. The US Department of Labor lists eligibility requirements on their website. We explain here but you do need to check your respective state’s instructions. Look for the standards of the states in which you worked in using CareerOneStop which provides each states’ respective rules.

Minimum standards by state are usually reasonable. Waiting periods for when you may collect money varies by state unless waived. As of January 2020, the average weekly unemployment benefit was $385, ranging from a low of $213 in Mississippi to a high of $546 in Massachusetts. Those who are jobless in Puerto Rico and file claims received $163 per week.

Eligibility For Unemployment Benefits

You are eligible for benefits if you are unemployed through no fault of your own. Typically, you cannot file if you were fired or let go for “gross misconduct.” Please note that you should apply in any case because gross misconduct may only be proven in most cases through a lawsuit. Also, rules may be relaxed during this time due to the coronavirus.

Federal/State Efforts

While there is federal guidance for eligibility, each state has their own minimum requirements that a candidate for unemployment insurance benefits must satisfy. Each state varies regarding minimum time worked and wages. States pay the unemployment benefits to the claimant typically for 26 weeks. However, there have been extensions to that timeframe.

The federal government provided an unprecedented amount of financial support during the Great Recession. They extended the unemployment insurance for up to 73 weeks of compensation added to the 26 weeks given by the states for a record total of 99 weeks of coverage.

More Money Will Likely Be Coming For The Unemployed

Please note that there are expectations for a huge federal $2 trillion stimulus package that may eliminate waiting periods and add flexibility to some of the typical rules required. Additionally, the package is expected to provide weekly unemployment benefits of $600 regardless of what state you worked in. The bill is currently pending in the House after passing in the Senate with a refreshing nonpartisan vote. We discuss some features below.

When filing for benefits, you must be available to work and actively looking for work. This means you may have to check in with your local office in person or via Skype to provide updates on your job search. You cannot collect unemployment benefits if you have another job or if you are enrolled in school or for training. However, you may be eligible for unemployment benefits if you are underemployed due to reduced hours or reduced pay.

Retaining Key Company Benefits

Those that are temporarily laid off or furloughed are able to collect unemployment benefits. However, they will collect if they are unpaid during the time they are not working. Typically they will also continue to keep some of their benefits coverage, notably medical/dental and other insurance. Those employees who have been permanently laid off and are qualified (having worked for an employer who has at least 20 employees) will be able to retain benefits for a specified coverage period of time through COBRA (Consolidated Omnibus Reconciliation Act) usually 18 months.

Among those that are not eligible for unemployment benefits are contract workers, the self-employed,  people who voluntary quit their jobs without a “good cause,” quit full time work for part time hours, or to go to school or training. However, if you have quit your job for “good cause” you may be able to collect. Depending on the state, good cause relating to the job may be as a result of a serious work-related injury, compelling personal reasons or the job is unsafe.

Government Action As A Result Of COVID-19

Recent passage of the Families First Coronavirus Response Act was designed to provide some mandatory relief for small business owners and their employees. The rationale for this law is to encourage those impacted by the virus to quarantine themselves. However, many small businesses do not provide paid sick leave. Many workers fear losing their earnings and/or their job.

The Act is directed at employers with fewer than 500 employees to provide emergency paid-leave benefits to employees affected by the coronvirus. Small employers will get new tax credits and federal payroll tax relief to help pay for emergency paid relief.  It is effective April 2, 2020 through the end of this year.

Paid Sick Leave For Employees

Paid sick leave will be offered for two weeks up to an 80 hour limitation at employee’s regular pay rate. It is further capped at $511 per day if the employee is unable to work because he or she is quarantined and/or experiencing COVID-19 symptoms and seeking a medical diagnosis. There is also paid leave for those employees unable to work because of the need to care for a dependent child under 18 years.

However, the amount of compensation is lower at two thirds of employee’s pay rate and capped at $200 per day.  Small business- employers will receive tax credits equal to 100% of qualified payments made to employees. Details on the Act can be found on the Department of Labor’s site and here.

Fiscal Stimulus Bill Is Near Completion

The Senate passed the largest stimulus bill of $2+ trillion for coronvirus-related stimulus. Details have been floating around at this writing but here is some of it. The House still needs to vote on the bill. As everyone knows, a bill is subject to change until it gets signed. Relief is needed for our declining economy. Some institutions play a bigger role and will be allocated more funds. It is difficult to wonder if this is the right amount at this time. It is a big stimulus for a starting point and designed to help Americans most hurt by the virus and its impact from the economic downturn.

Here are some of the key aspects of the Bill are:

 

Payments If You Earn Under A Certain Income Level

Direct payments are capped to individuals of $1,200 and married couples of $2,400. Parents would receive $500 for each child under 17 years. Payments will be paid to individuals with adjusted gross income (AGI) of up to $75,000 (or $150,000 for couples). The payment amounts decline above $75,000 and are eliminated for those making more than $99,000 (or $198,000 for couples).

Student Loan Relief

The bill suspends student loan payments without penalty for borrowers through September 30, 2020. This temporary relief for students will be available for a short period of time. Many of students have relocated because of the closing of colleges and universities. Many will receive some refunds for dorm costs directly from colleges and universities. However, tuition costs are likely not being refunded as most students are getting their courses online.

A Big Boost In Unemployment Benefits

For those who file claims for unemployment, federal government is providing a $600 weekly amount irrespective of where you had worked. This will be added to the respective money your state will provide. This is quite a boost to the average unemployment benefit of $385. There may greater flexibility on the part of the states, separate from this bill, in terms of getting unemployment without the 7 day waiting period.

Loans To Businesses Have Restrictions

$500 billion in loans, loan guarantees and investments. This is being allocated to airlines, cargo carriers and businesses working in national security with the bulk of the program or $454 billion going to businesses and municipalities. Importantly, small businesses with less than 500 employees will have access to forgivable loans provided they retain employees. Payroll tax credits will incentivize these small businesses to avoid layoffs.

Not surprisingly, the federal government as creditor is restricting businesses receiving loans from issuing dividends. It is not clear if companies getting funds will restricted from corporate buybacks which has been urged by many.

Substantial Money For Several Groups

Hospitals will receive about $100 billion and get a higher bump in Medicare payments for treating virus-infected patients. State and local governments will be getting $150 billion, and Pentagon is getting reimbursed by over $10 billion for funding the National Guard costs that have been accumulating. Some of these amounts may be subject to change and/or limited by restrictions.

Differences Between Furloughs, Layoffs and Reduction In Workforce

 

Layoffs, Downsizing, or Reduction In Force

Losing your job through no fault of your own can come about through layoffs, downsizing (sometimes called rightsizing) or reduction in force. Temporary layoffs are more like furloughs which infers you will have a job to go back to after a time period. However, if you are permanently losing your job, that is a layoff. Most employees are at-will workers meaning they can be let go or fired for any legal reason. Engaging in discrimination is illegal of course. Employers usually announce large layoffs with notices of their plans to downsize or reduce their workforce by 5% for example.

Furloughs Have Become More Common

Generally, furloughs are mandatory time off from work without pay. Furloughs are not layoffs as employees retain their jobs, benefits and any employee rights they are entitled to. Temporary layoffs are furloughs so long as employees are expected to return to work at the end of the period. A variety of industries may use furloughs when they are seeing reduced demand either seasonally, a cyclical  downturn, a union strike, or an emergency such as COVID-19. It could be for a fixed term of two weeks or longer, or for a certain day such as all Fridays in the summer.

A “No Work Rule” for employees means that they cannot engage in even answering a phone call or email related to their job. Otherwise, their employer will have to pay them for their time.

When an employee is furloughed, there is an expectation that they will return to work. They retain their jobs and return at a specific time or if a condition that triggers the end of their furlough is met. That could mean the strike is over or demand for services or products have returned. During the time the employees are out of work, they retain some of their benefits, notably health or life insurance. Furloughs are not usually COBRA qualifying events but it is always best to check with your respective employer.

What About Retirement Benefits?

Retirement benefits may pause for employees on furlough. Workers typically make contributions to their 401K employer-sponsored plan via their paychecks. However,  if they aren’t being paid they are probably not making contributions. Neither will their employers make match contributions during furlough periods. On the other hand, employees may seek part time employment or new jobs altogether.

Cost Measures That Can Be Taken

Employers risk losing their best employees and lose productivity if employees have been out for a period of time. Morale often suffers. Employers will typically let temporary employees and contract workers go first. On the latter,  employers must check contracts carefully especially in the case of COVID-19. However, furloughs are better than layoffs for employees if they are clearly spelled out.

As alternative cost cutting measures, employers should consider hiring freezes. By not hiring replacements for employees that have left the firm they can let normal attrition play out. Other measures may be to ask your employees to take temporary pay cuts or reduced hours.

Furloughs For Employees Due To the Coronavirus

Unless you are able to work from home, or are those engaged in emergency efforts (eg healthcare, police, fire, air traffic controllers), many employees are unable to work.  Many companies since the outbreak of the coronavirus have been furloughing their employees by closing their facilities, shutting down sales, distribution, shipping and other operational functions of their businesses. That is especially true if that function basically addresses nonessential products and services. Concerns about infections and the virus spreading are prompting  social distancing.

Small companies employ most of the workers in our country today. They and their employees in a variety of industries may be most vulnerable during this health crisis. Owners are trying to keep their employees on their payroll as long as possible without bankrupting themselves. As a result of these pressures, Congress passed the Families First Act.

Final Thoughts

We all know people who have been impacted by the virus, some seriously. As Americans, we are reliant on our desires to work, be productive, socialize, and travel. However, most of us are social distancing and working from home, if fortunate, or not working at all. That impacts our economy, our finances, and our morale. We have never been here before and so we are adjusting as best we can to this new normal. However, we want our respective normalcies back as soon as possible.

Unemployment levels are central to the health of our economy. We are just seeing the substantial ramp up in initial claims for unemployment insurance to unprecedented levels. That will hurt us and may be the difference between a mild, short recession or something far worse. Government actions will help. If you are out of work or in a furlough, file for unemployment benefits that are due to you.

Related Posts:

How To Prepare For A Coronavirus-Related Recession

How The Coronavirus Affects Your Money

We hope you and your families are staying healthy or receiving needed care. Please share any thoughts you may have as we enjoy hearing from you!

 

A Letter To My Son During The Coronavirus Pandemic

A Letter To My Son During The Coronavirus Pandemic

Dearest Tyler,

I am writing this letter as you have been hard to reach. Being forced to stay at home is not what you or anyone wants to do.  As the coronavirus has spread, we as a family have essentially been locked down. Yes, other young adults are still out there congregating, almost flaunting their right to do so. That is so wrong, but their parents can fight that battle.

Several major states have shut down businesses, urging nonessential workers and people generally to stay home. No one wants to lose their freedom like this. However, I am proud of you that you have started to come around to understanding how bad this health crisis is becoming.

Respect What Is Being Asked For Our Community’s Sake

Striving to contain the spread of COVID-19, closures have become necessary virtually everywhere. Communities are being forced to take drastic measures in an attempt to  “flatten the curve” rather than permitting cases to continue to rise unchecked. Unfortunately, virus infections are likely to increase, peak, and hopefully drop quickly. With closures of schools, colleges, restaurants, entertainment, sporting venues, we are increasingly isolated. Our economy is beginning to slow.

Why  Am I Telling You This?

For one thing, I love you with all my heart. Staying at home is harder for you than it is for your sister, Alex, Dad and I. While you may not be as vulnerable as others, you are an incubator and can spread the virus. This health crisis is bigger than us. We owe this action to our neighbors, our communities and your own Dad. As you know, he is in the high risk category due to diabetes and high blood pressure.

I am sorry we are all going through this. The coronavirus is no one’s fault but it has changed millions of lives overnight. We should play a small part in doing what is asked of us–staying home–to slow the virus from spreading. You can still communicate easily with your friends in groups or individually. Take a walk in this nice weather. The virus has not slowed your ability to play xBox, be on Facetime, Minecraft, Snapchat, or binge on Netflix. I think it is time to invest more in yourself. Later, I’ll share some of my other thoughts for you as to what can you do with this time.

We are in better financial shape than many although a recession will hurt. People will lose jobs if they haven’t already and businesses will fail. I have sympathy for college seniors who should be on interviews for their first job after college graduation. Opportunities they did have may dry up or will likely be deferred. Yet, they still have loans to pay. Millennials were a generation at risk due to the Great Recession, As a result, they have had a late start with their careers and finances. They know firsthand how economic difficulties can throttle growth.

We will likely experience a coronavirus-related recession which you can read about here.

King Solomon’s Ring 

We can all use more humility and less hubris.

I came across a Yiddish tale about King Solomon. There are several versions of this story told in Persian, Turkish and Buddhism languages and cultures, Even Abe Lincoln had his way with the moral of the story.

King Solomon wanted to teach Benaiah a lesson in humility. He told Benaiah “I have heard rumors of a fabulous ring that has a unique power. When a sad man gazes upon it, he becomes happy, but when a happy man gazes upon it, he becomes sad. Find this ring and bring it to me.”

Benaiah set out in search of the ring, but no one had ever heard of such a ring. He was about to give up when he spotted a junk shop. Benaiah approached the owner and described the object of his search.

“A ring that cheers the sad and saddens the cheerful?” said the junk dealer. “Come inside.”

They entered the shop. From a boxful of baubles the junk dealer took a plain, silver ring. He engraved some words on it and gave it to Benaiah. Benaiah read the inscription, nodded sagely, and headed back to the palace.

A Lesson In Humility

King Solomon was expecting an unsuccessful and humble Benaiah. So when Benaiah strode in and handed him the ring, the king was taken aback. Inspecting it, he read the inscription and laughed, “It was I who needed a lesson in humility,” he said. “This ring has reminded me that wealth and power are fleeting things.” King Solomon removed the costly rings and slipped on the ring from the junk shop.

The Yiddish phrase engraved on the ring:  GAM ZU YAAVOR meaning “This too shall pass.”

However, you are upset about being cooped at home and can’t socialize as you would prefer with your friends. You are nearly an adult but you will always be my child. In recent months I have seen you blossom in many wonderful ways, having a maturity to listen, debate and being more curious about the world around you. This is a perfect time for me to share some of my experiences and pass on some lessons about money. As your great grandmother often said, “Poor or rich, money is good to have.”

O Youth, What Do You Really Know?

As an teen, I know you don’t need my advice. You know better than your parents as all typical teens believe. Remember, I was once young but it was a long time ago so what do I know. If you don’t want my thoughts and recommendations, you can throw this letter in your sock drawer later on. The drawer is actually empty as your dirty socks are strewn around your bedroom. As digital natives, you adapt quickly to technology and absorb information quickly. Of course, that doesn’t mean you know it all. As you know, I learn from you.

Our culture favors youth as the future of our country. Your generation represents energy, happiness, and freshness as well as being thrill seekers. The curse of youth derives from the blocking of your ability to fully understand what you don’t know. As smart as you are, you still lack at age 16 years the common experiences to know it all. Heck, no one knows it all!

As the level of virus infections rose, photos of young adults at the beaches were going viral on social media. At the same time,  I was recommended “Youth” an autobiographical short story by Joseph Conrad written in 1898.

Narrated by Charles Marlow to friends,he recounts his first voyage on the Judea to the East twenty two years ago when he was 20 years old. The trip should have taken 150 days but it was significantly longer. However, Marlow fondly reminiscences about the many obstacles—storms, collisions, fire, retrofitting, and other dangers–with vibrant enthusiasm and optimism of a still young man.

Here’s a quote that nails youth’s nature:

“O youth! The strength of it, the faith of it, the imagination of it. To me she was not an old rattle-trap carting about the world a lot of coal for a freight–to me she was the endeavor, the test, the trial of life. I think of her with pleasure, with affection, with regret–as you would think of someone dead you have loved. I shall never forget her…Pass the bottle.”

Joseph Conrad

Remember Reverse Mortgages

You and your sister, Alex shared a room when you were toddlers. Dad and I would read to you and then I would draw letters on each of your backs. You would guess at the letters. As you were older than Alex (you were about 3.5 years old), we would ask you to guess the letter. Then we asked you to give a word starting with the letter.

One day, you correctly said, “R,” and shouted out “Reverse Mortgages!” as the word. Alex jumped out of your bed running around the room saying, “I never heard of that, how does Tyler know it, what is it, I want to know!!”  Dad and I were hysterical at her reaction.  You didn’t know it either other than parroting the term from a recent commercial. However, you both demanded an explanation. We were happy that you wanted to know.  We explained it as long as your attention span would hold (not much in those days or even now!).

 

So here are my 12 recommendations:

 

1. Time Is More Than Money

Tyler, they say time is money but time is a far more precious resource. You can always generate more money but you can’t get back time if it was spent poorly. Be productive of your time. Time value of money is a concept whereby money has the potential to grow in value over a given period of time. When we deposit $100 in cash into a savings account, it will be worth more a year from now if the account earns interest. Treat your time with respect. Use it wisely.

Time and money are inextricably related as in  “Time is Money,” but are the words truly interchangeable?

Asking someone “How did you spend your time today?” is acceptable while “How did you spend your money today?” is not.

Money and time are resources but as time is finite, it is a more valuable resource. We can make more money although we all differ in our abilities to do so. We can’t purchase money but we may buy other people’s time for various services (eg. help with doing household chores) so we can have more time to do other things we need to do.

We live by the same 24 hour day clock as everyone else. At your age, you aren’t worried about wasting time, which you have an abundance of. I was no different at your age. However, by learning how to be productive now, you will have learned a great skill beneficial for the rest of your life. Invest in yourself, Tyler.

2. Avoid Procrastination

High school students are big procrastinators. You are a high school student. So it follows, Tyler, that you are a big procrastinator.  Dad and I have seen firsthand how you often delay your school responsibilities until the last minute. Or you miss the due date. As you have gotten older, we have noticed your procrastination has gotten worse.When you turned 16, we thought filling out the paperwork for your drivers learner’s permit would be a lay up. What 16 year old doesn’t want to learn how to drive?

Learn From Dad’s Mistakes

As you know, Dad’s greatest fault is his perfection at being a great procrastinator. We have paid dearly in late fees, finance charges and missed opportunities for this bad habit. When I was working 24 x 7 hours, I was unaware of his inability to see a deadline for what it was. Tomorrow was always a better day to take care of something for Dad. Only in recent years did it occur to us all how significant the issue was. Since then, I have worked tirelessly for years and finally began paying all the bills myself.

We all procrastinate a little bit. Delaying is part of the lifestyle of high school and college students. However, if you don’t control it, there are downsides to delaying financial decisions like paying bills, saving, paying off debt, and investing. Procrastination is stressful and costly. Instead, take small steps, make a to-do list and get things done. It feels good to do so.

Related Post: 11 Ways To Avoid Costly Procrastination

3. Be In The Real World

Put down your phone once in awhile. Make eye contact with others and be socially engaged. It may reduce some stress and anxiety from envying what your peers may be doing. It’s not just you looking down into a 5.5 inch box conveying the virtual world. Unplug your phone and take a look around at the real world rather than the virtual world others want you to see. There are beautiful trees just outside your door.

4. Reduce Screen Time

Our screen time is likely up now as we stay closely in touch with family and friends. However, you should find some time to get off the screen. The average American spends more than 11 hours per day on their screens. However, not all of that time is wasteful. We watch shows, read, listen, play video games and interact with others. Our phones, notably iPhones, come with screen-tracking so it is easy for us to see how we spend our time with our devices.

On average, we spend nearly two hours on 5-6 social media platforms, including Facebook, Instagram, Twitter, Snapchat, YouTube, and Twitch. That equates to 5 years 4 months, just behind the 7 years 8 months we spend on watching TV according to Mediakix.

That’s a lot of time to spend looking at a screen. Try other things like exercise while you are largely forced to be home. Yes, the treadmill has a screen but at least doing something more.

5. Embrace Learning

I can almost feel your eyes rolling at me. You know that I have always valued continuous learning. Accumulate knowledge and understand both sides of an argument, read different genres and go out of your comfort zone. Deepen what you know rather than read superficial information that expires in a short period of time as forgettable bits. The wealthiest and most successful people read a lot and expand their creativity to build businesses. Warren Buffett, Mark Cuban, Elon Musk, Oprah, Chelsea and Hillary Clinton all read a lot.

Learn from different media like TED Talks or podcasts that interest you. I have always found it fascinating to hear your point of view. Try to also know the opposite perspectives as well.

6. Eat Healthy And Exercise

Having the right frame of mind is often helped by eating healthy, exercising and remaining positive. Being healthy helps to enjoy more of life and longer. I have been eating far more healthy in recent years but should do more exercise. Tyler, your diet is largely Oreo cookies, chips, sausages, and pizza bites. To a lesser extent, you will eat hamburgers, plain bagels (with nothing on it!) and some fruit. I was happy to see you added grapes, strawberries, and apples to the latest list. Due to the coronavirus, it has been difficult to get pizza bites or regular pizza deliveries.

I have cooked nearly every night. So I made several Asian dishes with bok choy, bbq ribs, chicken tikka masala, escarole with white beans, cabbage salad with chicken, Chicken and eggplant parmigiana), and shawarma. I believe chicken parm was th only dish you tried. Tell me what you would like and I will do my best.

I admit that I could do better with making more time for myself. I enjoy being outdoors, especially taking a long walk in our neighborhood. I am trying to carve out more time in the beautiful outdoors. I spend a lot of time teaching and writing, especially now with distance learning replacing class time with my college students.

You are young, Tyler, and you should be far more active. It’s a bummer that you were supposed to be on the track and field team this spring. However, the weather has been great so run outside. Use the treadmill we recently bought with you in mind.  A fit and healthy body accompanies a clear mind and  increased stamina.

7. Learn New Skills

Challenge yourself to learn new skills. Sometimes it is intimidating to learn something new at first. Learning can be frustrating and may raise some doubts in your mind. The harder the skill, however, the greater the reward. Just dive in and enjoy the experience.

Throughout my life, I have always looked to eliminate a weakness by learning something new. One of the major demands of being an analyst is being a public speaker. I was never going to find success in my chosen career unless I tackled my fear and lack of skills. I joined Toastmasters with a friend for about a year. It was an exhilarating experience! I am still not a great speaker but I came a long way from hiding behind others when I was called on to speak in class.

Out of necessity sometimes we are forced to learn how to do new things. I truly have a fear about technology. You know that and laugh at me. Due to the virus, they shut down the colleges, replacing my face-to-face classes with distance learning. While I had been trained on Blackboard Collaborate a few years back, I didn’t think I could use the program. As emergencies happen, all the faculty were retrained with the need to teach for the second half of the term. I am no expert but I was able to get all of my classes on Collaborate.  Surprisingly, I actually like it a lot and more importantly, I am glad students will not miss any of the work that was planned for this term.

Find something that interests you, watch YouTube videos and the news. You really don’t have that much homework thus far so make better use of the time.

Remember When You Did This?

About a year ago, I was pleasantly surprised when you started speaking Chinese at the dinner table. Apparently, you had found a site (www.Duolingo.com) at school to help you with Spanish. You then self-started the Chinese program and enjoyed learning Chinese characters which most find difficult.

Tyler,  the years I worked on Wall Street 7 days a week, I found myself to be virtually ignorant about many aspects of life. So consumed was I as a telecom equity analyst, I had no time or energy to read a book or learn anything else. It is very important to be interested in all that the world has to offer.

8. Take An Interests Assessment Survey

This may be a good time to take an interests assessment survey. They are free, relatively short and may provide valuable information. You’ll be looking at colleges and various programs soon. There are a number of sites that ask a set of questions about what you like/don’t like or your strengths and weaknesses. Different types of assessment focus on specific areas like skills, interest or values.They have more indepth assessments available.

There is truly no downside I see to spending a few moments doing a survey. They may point you in a direction that may ignite a new area for you to research further. There are a number of places that offer a variety of interest assessments here.

 

9. Work Hard Now For More Options Later

Tyler, your life is just beginning now. You can accomplish whatever you want to within reason. Determine what your interests are. They will change and expand over time. Be open to new things rather than stubbornly sticking to a narrow focus. Know what you most want to be and design a path that gets to where you want to be. You may want one kind of lifestyle now and it may change over time.

Achieve some sort of a balance that suits you. You can’t control everything but there are things you can do today that may make things better for you.  Most importantly, work hard and do well at school now so that you have more options.

As Mark Twain (and many others) said, “Find a job you enjoy doing, and you will never work a day in your life.” I know you can achieve success. Have a “can-do” attitude. Be the best you can be. Collaborate and network with others to fill in gaps when you don’t have all of the skills needed. Tyler, know what you don’t know. That is not a weakness. Instead, it is a weakness to think you know everything and are not open to learning more.

10. Stock Market Games

As a happy warrior when playing simulated games, why not get a bunch of friends to join a Stock Market Game. It is a great way to get started with understanding basic investing, terminologies and strategies. It is easy to set up. You were in a stock market club that used a similar game I use for my college students. It is free and has a lot of resources.

Given how volatile the market has become as a result of the COVID-19, it is an interesting time to understand the markets and our economy. We are heading towards a recession. I recently wrote about the coronavirus, economy and money. Here is that post: You can read some information about simulated stock market games here.

As you know, I was an equity analyst working on Wall Street for an investment banking firm. I have some experience analyzing a group of companies within one industry and understanding the financial markets, the economy and many factors that affect stocks. I don’t have any foolproof way to make money but I do use a disciplined approach as every investor should do. The nearest concept to magic is the power of compound interest when you earn interest on interest generated by your investment portfolio. It can boost your portfolio over the long term. I even have a post here that provides help with essential Wall Street jargon that you can share with your friends.

11. Invest Your Money

Today, you don’t have a lot of savings on your own. Dad and I set aside some money for you in a 529 Savings account that you can use towards your college tuition. I also set up a UTMA account for each of you and Alex. I have often talked about it with you but it probably still is an abstract subject for you. Let me just say that it was doing quite well until the peak in the market in February. Since then it has dropped about 33%.

Once you do have a job, even part time, a portion of your savings should go into investing in stocks. You have a long horizon and can weather turbulence in the market when you are young. Investing is the best way to accumulate money so you can have a comfortable lifestyle. By the way, Tyler when I say invest, I mean buying and holding stocks for the long term. I am not referring to trading stocks which require different skills.

Compound Growth

Whether you putting aside money for investing or retirement, compound growth is an important concept to learn. I know you are not going to save for retirement now. However, you probably will when you are in your 20s and start working. Typically, the money is taken out of your paycheck by your employer and invested in stocks. The company often provides a match contribution based on the amount you saved.

Let’s say you are 25 years old, your salary is $75,000 per year and you want to save 6% of your salary or $4,500 for retirement money. Your taxes will be deferred (not deducted) on that amount. In addition, you may also qualify for a match from your employer. Usually, your company may contribute fifty cents of every dollar you saved for retirement, meaning an additional $2,250 more from your company for a total of $6,750 a year for a total of  $270,000 ( $6,750 x 40 years).

After 40 years, you have about $1.4 million in retirement money using an online retirement calculator. By the way, if you push out savings by 10 years, to age 35, your retirement amount drops to just under $700,000. That is a big difference when you delay saving for retirement. These numbers are back of the envelope calculations. When the time comes  you can look into the different investment options you have to put your money. Sometimes your employer will match you dollar for dollar so when you save $4,500 in your account, your employer matches your contribution with another $4,500. How about that, Tyler?

I wanted to use the retirement example to illustrate compound interest which works with investing as well as.

A Disciplined Approach

Investing can be risky as we have all seen in recent weeks. We are now in a bear market shortly have after the 11 year bull market peaked. If you have a long term horizon and do not need the money to pay bills, you will be fine. Investing in stocks is always risky and but are compensated with higher returns than safe securities like treasuries.  Diversification of your portfolio is one of the best ways to reduce risk in your investment portfolio. It means that instead putting all of your money into one stock, you buy a basket of several different kinds of stocks in different businesses to offset possible weaknesses in one stock.

Pick A Low Cost Mutual Fund

The best way to do that is through purchasing a Vanguard low cost mutual fund for example which is usually managed by a portfolio manager who has expertise in the different stocks in the fund. There are inexpensive ways to invest in such a fund or even an ETF which is similar to a mutual fund.

I want you to be empowered by what you can do when you are handling more money than you have now. The more you know now the better your habits you will have. Later on, you will want to learn about how to buy a new or used car; how to rent an apartment and other personal finance topics. There are more lessons I want to share now so that you can be a strong person to be reckoned with.

The coronavirus has been affecting the stock market, the economy and our money which you can read about here.

12. Setbacks Are Normal

Assume you will have some obstacles in life. Setbacks are learning experiences. Reframe the failure to strengthen and motivate you. They may be blessings in disguise and point towards better opportunities. Expect mistakes will happen and learn how to recover from them. You will be stronger. Many great inventors failed over and over before they became famous for their product. The point is to use feedback you are given to learn from errors and to motivate yourself.

Setbacks early in life are like a gift so long as you learn from it. No one has a straight ride to success without some fumbles along the way. Learn how to dust yourself off and try again and again. Stamina is needed as much for failure and success. However, without setting some goals for yourself, how will be able to measure your achievements?

Final Thoughts For You

This letter is devoted to you. You and Alex are so different. I love you both dearly. She and I communicate a lot more. Sometimes you can be distant, stubborn, moody, and a bit  lazy. Still, you have wonderful qualities with that wry sense of humor, intelligence, passion for others.  I want you to value yourself and be confident about your abilities. I’d like to see you be more active and plan more. College preparation is coming. Are you ready? Take charge of your future and invest in you!

Keep growing as the amazing person you are becoming. I know that you will learn to handle money with the care it deserves. This letter is not laced with personal finance topics like I shared with Alex but you take can a look my letter to her here.

Love you,

Mom

PS: Tyler, I know you are a subscriber but many of the topics I want you to learn more about are discussed on the blog and can be found: https://thecentsofmoney.com

 

Thank you for reading! Stay healthy during this time!

How To Prepare For A Coronavirus-Related Recession

How To Prepare For A Coronavirus-Related Recession

A recession is a more than likely economic outcome caused by coronavirus. The swiftness of the impact of COVID-19 on our communities is unprecedented in modern times. This virus is a serious natural disaster spreading on a global scale. The virus is a pause button on our society.

Its results are not yet showing up in economic indicators.  Latest figures on unemployment remain low at 3.5%. Initial claims for unemployment insurance were down.  That’s because the latest indicators were largely based on February numbers, prior to the virus in the US. Unless you’re in denial, you know a recession is coming. If you are old enough you may recall how bad the economy got in 2008-2009. Fear is a justified feeling though each recession may be different as it is event-driven.

Fed Emergency Action Mirrors Efforts Taken For The Great Recession

At this writing, the Fed cut its benchmark interest rates by a full percentage point to a range of zero to 0.25%. They will also be buying at least $700 billion in Treasury and mortgage bonds. The Fed will be be joining a global coordinated effort with major central banks including Canada, England, Japan, Switzerland and the European Central Bank.

To put this in perspective, the Fed is using a near mirror image of near zero rates and quantative easing that were used during the severe 2008-2009 recession. In a relative short time, this Fed is using its power to lessen impact of virtual shutdown on our economy. We as Americans, as consumers and as the number one economy in the world have not been here before. COVID-19 is the kind of beast that has rattled our financial world. I applaud their action. However, implementation and impact will takes time.

Let’s get back to some basics.

What Is A Recession?

In its simplest terms, a recession is a decline in economic activity involving at least two consecutive quarters. The National Bureau of Economic Research or NBER defines an economic recession as a “significant decline in economic activity spread across the economy lasting more than a few months, normally visible in GDP, real income, employment, industrial production and wholesale-retail sales.”

Recessions can be mild and short like in 2001 when it lasted eight months. On the other hand, they can be  more severe as the Great Recession which lasted 18 months. What typically happens during a recession is this: consumer spending drops impacting businesses. In turn, they are forced to slow or stop hiring and potentially implement layoffs. Unemployment rises and households have difficulties paying bills and their debt.

The Fed’s Monetary Policy

The Federal Reserve has moved fast to lower the fed funds rate and add liquidity into our financial system. By lowering their benchmark, they influence all interest rates. That will result in lowered rates including the business prime rate, loans for mortgages autos and colleges. They look at many economic and inflation indicators—leading, coincident, and lagging–that telegraph where we are relative to typical business cycles. Leading indicators are predictive and occur before changes in economic cycles. They include the S&P 500 index, housing permits, and initial claims of unemployment insurance.

Government And Private Actions On Paid Leave For Workers

It is not just the Fed that is moving to help consumers. On a parallel track, there have been the beginnings of coordinated actions by government with the private sector. Help is needed for their employees and those who own small businesses. Besides the desperate need for available testing, workers without access to paid leave when falling ill or hospitalized experience additional stresses. Access for workers to paid leave varies dramatically with high numbers of people not covered according this table. Large companies offer paid leave but who pays for those who do not have that benefit?

It is difficult for those living paycheck-to-paycheck to make ends meet. Without paid leave, low hourly wage workers, freelance workers and others who are not being paid for any time off when sick. Some emergency packages are being put in place for those in need. Otherwise, some who are ill may take their chances going to work so as not to lose their earnings or job. This poses a nightmare scenario of the virus spreading faster. Social distancing in communities will come at a serious cost but the virus will spread faster without it.

From Bull Market To Bear Market In A Record Time

The impact on our volatile financial markets have been felt deeper and harsher than the many of the other leading indicators. Terms like stock market crash, corrections and bear market emerged in quick succession.  A stock market crash occurs when the market falls 10% from its 52 week peak in a matter of days of trading. On the other hand, a correction in the market is more gradual, with stocks falling 10% from the 52 week high typically over months. Bear markets result after a 20% decline from a 52 week level. This also happens over a number of months. The reaction in the markets to the coronavirus, once it arrived in the US from China, was rapid.

The End Of The Long Bull Market

Here’s how the stock market did in recent weeks illustrating its swift moves.The S& P 500 index used as a market proxy peaked at $3,386.15 on February 19th, declining  to just $2,978.76 on February 19th in six trading days. This a 12.3% drop into solid correction territory. We officially entered a bear market on March 11th when the S&P 500 hit a low of $2,707.22 that day, closing at 2,741.38, ending a 11 year bull market.

Since World War 2, we have had 26 market corrections (not including the latest one) with recoveries taking about 4 months on average. However, if stocks go into bear territory as we are now, there is more pain and it takes more time to recover. During that same timeframe, there have been twelve bear markets averaging a decline of 30% over 14 months,  taking 24 months to recover. The most severe recession was from October 2007 to March 2009, or 18 months. Stocks dropped 57% and took 4 years to recover.

When Will The Markets Bottom?

It is anyone’s guess when the markets decline will bottom. We don’t yet know the severity of the coronvirus spread or its full economic  impact. Hopefully, aggressive Fed action and containment efforts by government, private sector, communities and people will work well. There has been talk of fiscal stimulus that may further soften the downturn.

Here are five possible clues as to when the stock market bottom may be close:

  1. The Fed will be constantly looking at economic indicators to decline, trough and stabilize to signal our recovery. They will take further action, expanding quantative easing similar to what what has been announced just today.
  2. Economists look to the Conference Board Leading Economic Index which is composed of 10 indicators (including the S&P 500 index) that move up or down several months before the economy.
  3. We can look for the number of coronavirus cases to slow outside China. China seems to be recovering. I cheered when I read that Apple Stores are reopening in China.
  4. We have not yet hit chaos in the US, and our virus experience follows Europe, notably in Italy which has been locked down. Coronvirus cases will climb in the US, peak and start to stabilize in the US soon. When it appears the virus is under control, it may be a good time to buy.
  5. Corporate buybacks return with verve. Many companies have a lot of cash but have not activated their repurchases.

You Don’t Have To Wait For A Bottom

When the markets are particularly turbulent, I have used Investor’s Business Daily. They provide charts, volumes, market  upturns, downturns, and follow-through days. A follow-through day indicates a rally attempt has succeeded and the market direction has changed from a correction into a “confirmed uptrend.” It tells you to start gradually buying stocks again. Stock rises need to be accompanied by above average volume for a number of days to confirm a market uptrend.

On down days in the market, I have bought some shares to average down my cost basis. I am a long term investor, not a trader. Like most people, I have found it hard to look at my stocks on a daily basis. I don’t think we are near the bottom but who knows where that is. However, if you are going to own stocks for the long term, you can begin to add to your existing stocks or buy names that were on your previous list but may be at bargain levels.

Steps To Take To Prepare For A Recession

 

1. Save More, Spend Less

You may find it easier to save more during the coronavirus period. By staying closer to home, you are likely not eating out, shopping, going to the theater, concerts, sporting events or movies. True, you can order in or shop online. Use this time to cut down on spending for things that are unnecessary. Put savings to work in your emergency fund.

Make sure you are increasing your liquidity in your savings accounts or money market deposit accounts (MMDA) which are insured by the FDIC. It is not clear how long you may experience less work hours or reduced face-to-face time with clients. We wrote about how it important it is to have an emergency funds in the previous post here. Consider using some of these savings to set up an emergency fund if you don’t have one. It is never too late to start.

 2. Retirement Saving Accounts

You probably noticed a sharp drop if you even dared to look. It may get worse before your accounts look better. If you have a long term horizon before you are going retiring, do little or even nothing. Keep your automatic paycheck contributions in place especially if your employer offers match contributions. That extra money is valuable and through compounding, grows faster. Remember that if you take money out of these accounts that you are counting for later on, you will lose future compounding benefits and maybe even have to pay penalties for early withdrawal and taxes.

Unless you are facing or are about to face financial hardship, avoid drastic changes like a shift to cash especially if retirement is not imminent. Stocks which have been battered should not be sold as they have the greatest upside when it is time for the markets to recover. Bonds, especially high quality bonds like treasuries may be better places to withdraw money from. Investors flocked to these bonds for their safety, selling more risky stocks.

On the other hand, if you are near retirement, your portfolio should already be shifting into more bonds relative to stocks. Check your retirement accounts to see if you have put your money into target date funds which adjust accordingly by age of holder or recipient. Resist withdrawing unless you have an emergency. It is hard to replace these dollars.

3. Refinancing Opportunities

With mortgage rates likely to be further reduced with today’s action by the Fed, don’t wait until the virus outbreak goes away to use them. Consider refinancing your loan if you can get a healthy drop in your rate and/or shorten your term.  If you have been paying your bills on time, your credit may have been improved, enhancing your refinancing abilities.

The higher your credit score the better your new loan terms will be. Consider your budget and what is most appealing to you: a lower interest rate or a shorter term. A lower interest rate will reduce your monthly payments while a shorter term (from 30 year to 15 year term) may raise your monthly amount but you get rid of the loan faster.

4. Buying or Selling Your Home

The National Association of Realtors are seeing reduced home buyer traffic and that is likely to get worse before it improves. That is understandable as “Open Houses” aren’t very appealing in this environment. However, if buying a home was on your list, it is a good time to start house hunting online. The low mortgage rates will be a stimulant for buying your home once the virus is stabilized For sellers, this is a tough time, especially if you are in need of the proceeds of the sale but take some heart that demand will come

5. Paying Off Your Debt

You need to continue to reduce your debt. If you have the opportunity to refinance your mortgage or car loan you should do that now. Remember to pay your credit card balances in full each month. Simply paying the minimum requirement is not enough. Reduce your spending so you can pay your bills in full.

You may have heard that President Trump took some action related to student loans as part of emergency executive actions. He called for a waiver of your student loan interest on federally held student loans “until further notice.” Until it is seen in writing it is a bit unclear. It is not a suspension of monthly loan payments or loan forgiveness. It appears that your monthly payments will remain the same but credited towards the principal amount of your loan rather than waiving all of the interest you owe. This will likely lower the principal amount while they pause some of the interest that will be accrued during virus period. It is good but not as much as had been hoped for.

Positive Takeaways Will Emerge From COVID-19’s Wreckage

The coronavirus has had negative consequences. There are high costs for businesses and their employees not just in the cruise or travel businesses. The financial impacts are spreading to other businesses as well.

While the coronvirus has had negative consequences, here are some positives we are experiencing:

  • Closing of schools and colleges have increased reliance on distance learning. Imagine no more snow days because classes will be held online.
  • Time to learning new skills if you are staying home.
  • Reflection time, goal setting or review your future plans.
  • Heightened awareness about your communities.
  • Appreciation for the businesses and institutions that you depended on that are closed now. Validate their value by shopping or visiting them when the dust clears.
  • Taking  more health precautions in the future when we have minor illnesses around family, friends, acquaintances, and co-workers.
  • Kindness has been increasing in this tough environment. Let’s be thankful for what we have.

This too shall pass.

Final Thoughts

We have been experiencing dramatic times at lightening speed. The stock market fell into bear territory quickly, reacting to the anticipated impact on our economy and communities. The uncertain environment has been taxing in recent weeks signalling an inevitable recession. The Fed has undertaken massive emergency measures to lessen to burden on our economy that has not yet faltered. This post was designed to explain what is going as we grapple with these circumstances in our lives.

As a professor, I am rapidly redesigning my courses for students as we rely on distance learning for rest of the semester. As a mom, I will driving my kids to school to retrieve their books so that they can begin their own virtual learning experience.

This will be our new normal for awhile as many millions will do likewise. I truly wish you good health and happiness. I will continue to post as always. I am anxious to hear how you are doing! Please consider subscribing to our newsletter and our community.

How The Coronavirus May Affect Your Money

How The Coronavirus May Affect Your Money

The coronavirus outbreak has been increasingly weighing on us as we worry about our loved ones’ health. We lack knowledge about  COVID-19 and its transmission. Credible reports say that most cases are mild but 15%-20% of cases fall into the very serious to severe illnesses. Those suspected of having the virus need to be quarantined for 14 days. This is an important measure to prevent spread along with other CDC recommendations.

All of this is leading to disruptions. Reports of tockpiling supplies of surgical masks, hand sanitizers, and  nonperishables along with price gouging are disconcerting. Our financial markets have been significantly volatile with the DJIA rising and falling of over 1,000 points in a couple of days. Clearly, we are bracing for elevated risks to US and global economies, jobs and our investments. Daily, we are hearing about school closings, cancellations of conferences, and trade shows. Some companies in urban areas are allowing their employees to work remotely or move to suburban office campuses.

How DoesThis Outbreak Affect You And Your Money? 7 Takeaways:

 

 

1. The Economic Impact Is Real

We are quickly seeing behavioral changes by consumers in response to headlines. After enjoying a long recovery post-Great Recession and low unemployment, economic uncertainty appears to be moving toward a downturn or recession. As the virus outbreak became more visible in the states, we wrote about the need to better understand economy, market volatility, potential Fed action and how to lessen risks which you can read here. Is the coronavirus a new black swan event? A Black swan theory refers to a surprise event with a major effect. Some think so.

We don’t yet know how troublesome this virus will become. Companies have been reducing their near-term earnings forecasts, largely associated with their businesses. However,  they do not yet have visibility into the longer impact on their companies’ growth. Employees quarantined or illnesses will affect supply. It seems more and more likely there will be shocks to supply and demand from households and businesses, leading to potential job losses.

2. Fed Took Action At First Emergency Meeting Since 2008

This week, the Fed cut rates by half of 1%, bringing down the fed funds rate to 1%-1.25% to contain the impact from COVID-19. It was the Fed’s first emergency meeting and biggest rate cuts since the recession in 2008. It is not yet at the lowest fed funds rate which was near zero, having been reduced from over 5%. Lower interest rates influenced by the Fed typically stimulate the economy, helping to drive up consumer spending.

The Fed wanted to send a reassuring signal that they are being proactive. That’s good news but initially it is not clear how much they can do for demand in the near term. Are we likely to be thinking about buying a house or car when worrying about the virus?  The COVID-19 is an exogenous variable we haven’t experienced recently.

 Other Tools The Fed Can Use

There are more tools available to the Fed in their toolbox. They can reduce rates further though they have less room now to bring them down. They will likely increase their purchasing Treasury securities from banks who will get more liquidity. Some have postulated that the Fed could consider purchasing other securities like municipal bonds or equity securities. That may need require Congressional action. Fed buying of Treasury securities are typical but their yields are miniscule given high demand for safer instruments

3. Take Measures To Stay Healthy

Follow precautions to lessen the risks of contracting the virus. Easier said then done, especially when we lead busy lives and have children who bring tons of germs home regularly. Preparing for the COVID 19 becomes necessary as families travel and gather together for upcoming holidays as reflected in this post by A Dime Saved.

4. Emergency Funds And Emergency Measures

If you have an emergency fund for unforeseen events, coronavirus would be one such event to use this if your job or hours became endangered due to being quarantined or being ill. If you don’t have an emergency fund or are living paycheck-to-paycheck, there may be increased measures for people impacted by this virus. Some states are requiring employers to provide increased hours for sick leave. Cigna was the first insurer in the US to say they would cover coronvirus testing at no charges to patients and waiving co-pays. Others will, no doubt, follow suit. CDC also offering free testing to patients upon doctor’s orders.

Make sure you can pay for your monthly living costs first. Those costs are mortgage, maintenance or rent, utilities (including phones), groceries, and health needs.

Small businesses are at great risk from slowdowns either because of supply chain problems or reduced demand or sick. Congress is adding more resources and will likely put emergency loans in place to ease the risk for households, especially those most vulnerable.

It may be hard to put away money for emergencies in this kind of market. However, you may be surprised to find that you are going out less to restaurants, concerts, sporting events and cutting down on overseas trips. If so, consider using some of this money to set up an emergency fund. It is never too late to start.

5. Review Your 529 Savings And Retirement Saving Accounts

You probably noticed a sharp drop if you even dared to look. It may get worse before your accounts look better. If you have a long term horizon before your children are going to college or you are going retiring, do little or even nothing. Remember that if you take money out of these accounts that you are counting for later on, you will lose future compounding benefits and maybe even have to pay penalties for early withdrawal and taxes.

You may want to check on the mix of your securities. Rebalancing should be done annually as you age. Typically, the younger you are the more risk tolerance you have for equity securities which are of higher risk and provide higher returns than money markets or bonds. You have more years to weather storms like these.

On the other hand, if you are near retirement, your portfolio should already be shifting into more bonds relative to stocks. Check your 529 savings or retirement accounts to see if you have put your money into target rate funds which adjust accordingly by age of holder or recipient. Resist withdrawing unless you have an emergency. It is hard to replace these dollars.

Don’t Stop Adding To Your Accounts Unless You Have To

Your 529 and retirement savings accounts are tax-advantaged which are different than your taxable investment accounts. As such, you can lessen your taxes for investment accounts by using a buy-hold strategy. By holding stocks for at least one year and one day, you will pay taxes at the capital gains rate capped at 20%. This is more tax-efficient than short term trading which is taxed at an ordinary income tax rate. While you may benefit from tax efficiencies, investment accounts are taxable, not tax-advantaged as retirement accounts. Dollars invested into your 401K account come from your pay-check, are tax-deferred, thus reducing your taxes for that year.

Remember to continue to add to retirement accounts regularly. Make sure there are regular withdrawals from your paycheck to your employer-sponsored 401K account. Increase your contribution when you get raises or bonuses so you can earn your company’s contributed match, if offered. Employer matching of your 401K contributions means the company may contribute 50 cents on the dollar up to 6% of your salary each year you contribute. The more you contribute up to the cap, the more you receive in the match. Make sure to contribute to your Roth IRA account to the max.

6. Should You Sell Your Stocks During Downturns?

During the recession, on October 16, 2008, Warren Buffett (we are huge fans of Buffett as you may have already noticed) said,

“Let me be clear on one point. I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month or a year from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

      Warren Buffett

Wouldn’t we all want to know if Warren Buffett is adding to his portfolio currently? Rest assured the optimisic Buffett will be dipping in at some point if stocks trend downward. We recently reviewed his latest letter to his Berkshire Hathaway stockholders. The company is sitting on a rather large cash pile he was hoping to use for elephant-sized acquisition. The company searches for bargains.

Does an economic downturn mean you should sell stocks? Not necessarily if you have a long term strategy. Financial markets go through corrections, bull and bear markets. Selling during economic downturns provide actual rather than unrealized losses. Many times that is the worse time to sell your securities. That said, when stocks do go up, it is a good idea to at least trim some of your holdings in these kind of markets if your risk intolerant.

Take a look at our stock indices from peak to trough during the great recession:

Dates                                  S&P 500                      DJIA                  NASDAQ

10/09/07-Peak                   $1,565.15                 $14,164.53            $2,803. 91

03/09/09-Trough                $ 676.53                   $ 6,547.05             $1,268.64

Percentage %                        -56.8%                     -53.78%                 -54.75%

By mid May, the S&P 500 was up 30%, rising over 60% by year-end 2009. Although you can’t pick the exact bottom of the markets, you can go bargain shopping for stocks that have undergone corrections or are in bear territory. For example, tech stocks have been strong leaders in the market but corrected during US-China on-off trade talks (remember that?) and now with supply chain disruption that begain with China’s virus outbreak.

Investors have been seeking stocks to hedge the coronavirus outbreak. Some of those names—Teladoc Heath, Veeva Systems, Clorox, Zoom, Gilead, Moderna–have been strong performers as investors pick these winners. However, these stocks may have moved up too quickly so check to see if they are trading at rich valuations or wait for pullbacks. Its always worthwhile to have some gold and defensive stocks that pay above average dividends in your portfolio. Look at GLD ETFs or Vanguard Dividend Appreciation ETF which are known for having more stable stocks in the portfolio.

Current indicators point to a weakening sentiment:

  • Gold is at seven year highs.
  • Utilities are at near all time records.
  • 10 year and 30 year Treasuries are sporting all time low yields.
  • Mortgages are at an 8 year Low

 

7. Lower Borrowing Rates May Spur Consumer Spending As Virus Fears Ease

With mortgage rates at their lowest rates in eight years, don’t wait until the virus outbreak goes away to use them. Consider refinancing your loan if you can get a healthy drop in your rate. If you have been paying your bills on time, your credit may have been improved which will further improve your refinancing abilities.

While you may not be going house or car hunting now, low interest rates are appealing when you are borrowing. Mortgages are at their lowest rate in years. If you have been in the market shopping for a car, you may also reap some benefits. Student loan rates may drop as well. Interest rates on credit cards are not likely to go down much. However, we may be using them more to avoid handling germ laden dollar bills. If so, make sure to pay your balances in full and on time. Use your credit cards for convenience, not for a borrowing machine.

Final Thoughts

You can’t control the COVID-19, it is here for the foreseeable future. Hopefully, it will be a distance memory very soon. First, take care of yourself. It may be a painful time money-wise for you. Try not to panic if you don’t need your money right away. However, if you do need liquidity, use your emergency funds for essential living costs. If you aren’t liquid because you are losing hours at work, seek out corporate or government programs for healthcare costs or emergency loans that have been emerging in recent weeks.

Review your savings and investment accounts and see if you need to rebalance your porfolio. This should be done annually regardless.  If you have a long term horizon don’t sell stocks recklessly. Heed Warren Buffett’s words. Those with money needs like college loans or retiring may be tempted to sell but consider the tradeoffs such as withdrawal penalties.

How are you faring during this stressful time? I wish you and your family good health and safety from the virus. How are you preparing. If you are an investor, how do you lessen your risks? Thank you for reading! Consider subscribing to our blog and get some freebies and our weekly newsletter. We would love to hear from you!