Managing Your Money

After what was one of the worst stock market crashes in history, we’ve now seen one of the most amazing recoveries, with the US and Canadian markets down only -3.1% and -7.5% respectively, as of June 30th. Central banks seem to have found a “vaccine” for capital markets in the form of aggressive aid all around, the long-term result of which we are not entirely sure. Despite this fantastic recovery, the VIX (a.k.a. the “fear” index) is rising, along with worldwide virus cases. Coupled with the economic uncertainty that lies ahead, it’s anyone’s guess when the markets will start noticing these fundamentals. The potential for a market correction in the near term seems more likely than ever, but then again, the markets seem to be wearing blinders.

“After what was one of the worst stock market crashes in history, we’ve now seen one of the most amazing recoveries.”

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Some of the economic data has been impressive so far, considering what we’ve been through, though US employment numbers are still 14 million jobs “in the hole” compared with January numbers. While some jobs and economic activity can be ‘turned back on’ as quickly as it was ‘turned off’, others cannot. Some businesses who are still receiving government support will not survive once that support ends.  Many who do will have to cut more jobs. Business are trying to survive as the first wave escalates and as new shutdown orders are being announced. And what if there’s a second wave? We are months, maybe years away from understanding the true economic fallout from COVID-19.

So, this brings me to a situation that I find very curious. Back in April, in the midst of the crisis, planned purchases of big-ticket items plunged, with most consumers feeling a negative financial outlook over the coming months. Fast forward to mid-summer and big-ticket, luxury purchases seem stronger than ever. Recreational vehicle dealers across North America have seen as much as a 170 percent increase in sales year-over-year according to the RV Industry Association. Some dealers are experiencing the best months in their history. I guess people aren’t feeling so pessimistic about their financial outlook anymore!

Just in the past week, I learned of two friends who purchased boats, and another who bought a new country house. Of the three, two are business owners, both of which have been impacted by the pandemic. The other is an employee in a non-essential industry. While all are comfortable financially, none of them are independently wealthy. They all need their business and/or employment income to live. I’m not judging whether they made smart purchases, but their purchases support the theory that many things today are in chaos – including many people’s spending and financial outlook. On the flip side, I also have a friend who decided to cut back 30% on the cost of a new car, due only to the uncertainty that lies ahead.

Interestingly, a recent survey done with 750 American millionaires by PYMNTS shows that generally the wealthy are feeling more cautious this summer. While most revealed that they saw little impact on their income and balance sheet from the pandemic, many still plan to cut back on spending and delay large purchases another year. They may have learned from the last economic crisis that they need a bigger cushion than they once thought. Or they may be opportunistic and waiting for prices on real estate, vehicles, and the like to fall even more. Either way their spending decisions are closely linked to their view of the economy and the underlying risks.

Without the usual summer pleasures to enjoy, I understand that many people are investing in other ways to enjoy leisure – upgrading their backyards with pools and/or hot tubs, planning road trips within Canada in recreational vehicles, or enjoying the Quebec waters with boats, jet skis, and such. With the extraordinary number of lives lost around the world to the coronavirus, it’s easy to see that life is fragile.  So, finding that balance between living life for today and planning for tomorrow is essential. The key word there is “balance”. Though I don’t believe it’s possible to have that balance without a clear understanding of your big financial picture. Having some clear, yet simple goals and understanding of whether you’re on track or not, can alleviate any guilt or second thoughts about “living for today”.

“Having some clear, yet simple goals and understanding of whether you’re on track or not, can alleviate any guilt or second thoughts about “living for today”. 

I’ll often use the analogy of food…. if you eat all the delicious fat and sugar ridden food that you crave today, the likelihood of developing diabetes and heart disease will be significantly increased, potentially shortening a long and happy life for yourself and those who love you. While if you find balance between healthy food and moderate amounts of unhealthy food, you have a better chance to live a longer, healthier life, while still enjoying some guilty pleasures today. It’s similar with money. If you plan to live a long healthy life, you’ll need enough money to live comfortably. Once you have that plan “locked-in” you can enjoy the freedom of guilt-free spending. And even if you don’t plan to live a long life…what if you do anyway?! It would really be horrible to run out of money.

This brings me back to the 2020 purchase of a country house, boat, RV, etc. Know your financial big picture. Evaluate the potential “what if” scenarios for the next year or so of this COVID craziness. If you don’t already have a complete financial plan, get one! I am naturally a “glass half-full” kind of person. I can always find the positives. I’m not being pessimistic, but realistic. We’re not out of the woods yet with this whole thing – not with the virus, not with the markets, and not with the economy. Ignoring the potential impact that may lie ahead is not “positive thinking”, and while it may feel more comfortable today, it can turn around and bite you in the “you know what” tomorrow. Under the chaotic and unpredictable circumstances that we are currently living, making conservative financial decisions makes sense. None of us can predict what’s ahead in the coming months but having a legitimate plan for the “what ifs” will help you sleep better at night. Zzzzzzzz…..

“Without the usual summer pleasures to enjoy, I understand that many people are investing in other ways to enjoy leisure.”

Lynn MacNeil Financial-PlannerLynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 25 years of experience working with retirees and pre-retirees. For a second opinion, private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or Lynn.MacNeil@RichardsonGMP.com. Or visit our website at www.EphtimiosMacNeil.com.

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