The COVID-19 pandemic is, by all accounts, a global crisis whose effects so far have been sudden and severely disruptive, while the longer-term impacts are slowly emerging.  Whether or not the oft cited Chinese proverb equating crisis with opportunity  applies to COVID-19 as a moment of opportunity remains an open question.

On a personal level, COVID-19 has been, at the very least, a moment of reckoning and re-evaluation, particularly in relation to our own physical and financial well-being, and that of our families and loved ones.

At Sax Wealth Advisors, we believe a comprehensive financial planning process during a moment of reassessment can temper the urgency to react with a greater sense of agency in times like these. The following areas and associated questions provide the basis for reviewing a financial plan, for those who have one, and may prompt those without one to consider how they might benefit from devising and following one.

Personality, Behavior and Biases

When it comes to financial planning and the underlying disciplines (savings/budgeting, investing, and tax filing and planning), the most critical factors are self-knowledge and awareness, which can be ascertained in an individual’s response to the following questions:

  • What is your need, ability, and willingness to take risk (especially now that financial markets have become more volatile)?
  • Are you overly focused on performance or exhibit FOMO (fear of missing out) tendencies or behaviors?
  • Do you have “grit” (persistence, perseverance, and patience)?
  • Are you aware of or inclined to behavioral biases (recency, confirmation, home team, myopic/short term loss aversion)?

The answers to these questions speak to how well an individual will confront and accept necessary modifications to their financial plan to reorient the outcome trajectory on a more sustainable path to still attainable goals.

Goals, Underlying Aspirations and Assumptions

  • Are they still realistic and achievable?
  • Has the COVID-19 changed your aspirations and goals?
  • Are employment, income and career expectations and assumptions still plausible?

Gaps in Needs, Wishes and Priorities

  • Has your recent experience during this crisis revealed any significant gaps in your plan, i.e. cash reserves, insufficient insurance coverages (life, health & disability), business interruption?
  • If immediate needs are pressing, are you willing to make trade-offs in longer term goals (travel, tuitions and legacies)?
  • Do your estate plans, related POAs and health care directives need to be reviewed and/or amended?

Worst Case Scenarios and Contingencies

  • Can your current plan sustain and survive an adverse sequence of returns?
  • Is part-time employment a possibility or an option?
  • Would re-location, downsizing a residence or tapping into home equity via a reverse mortgage either reduce living expenses or provide additional funds?
  • Might whole life insurance cash values and death benefits be accessed through borrowing or viatical settlements?
  • Are community-based resources available at low cost to supplement basic needs such as food, social and recreational activities, and elder care?

Engaging with your Advisor(s) 

For investors, and especially those whose investment expectations are anchored to the market returns since the Great Recession, the COVID-19 pandemic has been both a wake-up call and a gut check. The scope of cascading effects and their impacts have engulfed everyone in a rising tide of uncertainty.

COVID-19 has been and continues to be a health and a wealth scare, and therefore medical and financial professionals have a similar mission: acknowledge the reality and the anxiety of the crisis; bring perspective and context to the situation based on evidence and histories from similar events; and, most importantly, communicate clearly and confidently to reassure their respective constituents they can weather the crisis best by staying calm, taking positive steps, and avoiding mistakes.

Meeting with an advisor and reviewing an existing financial plan or creating one for the first time, aided by financial planning software, shifts investor focus from dread over further loss to finding a viable path forward, thereby restoring confidence and resolve.

Leveraging the analytical power of planning tools, a skilled and trusted wealth advisor can comprehensively address the major parameters and factors in determining a financial plan’s probability of success or failure for an investor. These include:

  • Determining investor risk preferences

Accurately setting portfolio exposure to risk factors is a significant determinant of plan outcomes, and requires triangulation among each investor’s unique need, ability, and willingness to bear investment risk.

Using planning software helps in evaluating risk posture in relation to underlying spending goals.  For instance,  Sax Wealth Advisors  run  Monte Carlo simulations of random portfolio returns based on projected return, volatility and asset class correlations (which may or may not be representative in hindsight).

Running the simulations with a conservative portfolio allocation may indicate the projected performance may not support spending goals. Alternatively, a simulation with an aggressive allocation, may show a higher probability of success in sustaining spending goals but greater volatility than the investor can tolerate. This is the kind of gut check investors with portfolios heavily weighted to equities are encountering for the first time since 2008 – 2009.

  • Identifying risk exposures and mitigants

COVID-19 has underscored the importance of adequate health insurance coverage. Those who have opted for high deductible plans may find their reliance on the health care system to be greater than anticipated amid a pandemic.

If you opened an HSA (health savings account) because your high deductible plan qualified for HSA eligibility, then you have set aside at least some funds to cover your deductible and maximum out-of-pocket expenses.  Otherwise, you may need to reconsider if a lower deductible plan, despite the higher associated premium is a better alternative.

  • Examining household spending levels and estimated non-discretionary retirement budgets

One of the enduring effects of COVID-19 may be changes in spending levels, categories and frequency as the magnitude and extent of the deviations from pre COVID-19 periods are reflected in the economic data.

Having been forced to get by with less, many households may become inured to doing without or with less of the discretionary and non-essential spending categories in their budget. For those within 5 years of their planned retirement date, this is an opportunity to test estimates and move closer to living within their retirement budget.

  • Optimizing use of federal, state, and local tax codes to reduce taxes

While the negative impacts of Covid-19 on income and portfolio values are likely to persist even past the worst phases of the pandemic, one silver lining is the opportunity to use this period to minimize present and future taxes. Conversion of eligible retirement account balances to Roth IRAs and tax loss harvesting are two ways to take advantage of losses and lower account values, while hedging against the possibility of higher tax rates in the future.

  • Reconsidering time frames related to employment, retirement and longevity

While legislative and policy responses to COVID-19 aim to protect employment related income and benefits, their adequacy and timeliness remain uncertain.

As employment and retirement timelines are key parameters in determining outcomes, individuals need to reassess how their target dates for retirement may change as their employment horizons either lengthen or shorten. Financial planning software can quantify the impact of changes to these horizons.

  • Reinforcing plan commitment by aligning goals with values

Beyond the immediate impacts of the COVID-19 crisis, many institutional investors have voiced their concerns over environmental issues, social welfare and corporate governance (ESG). In response, investment managers have addressed these concerns by creating ESG portfolios screened for companies whose business practices and polices meet emerging standards.

Individual investors who share these concerns and are committed to advancing the goals underlying such portfolios, may also be more motivated to stick to their plans and portfolio allocations by investing in ESG funds. In this case the acronym ESG might stand for “Extra Sticky Glue”.

  • Identifying contingencies and options to trim living expenses, reset expectations, or augment resources.

Reframing the approach to dealing with the magnitude of recent investment losses by focusing on future impacts may reveal comparatively smaller adjustments are needed to compensate for the decline in portfolio values.

Other options to either pare spending or augment resources include downsizing and/or relocating to more affordable parts of the country, applying for a reverse mortgage, and looking for part-time or temporary employment.

Finally, putting recent investment returns into historical context will rein in expectations for sustainable spending levels.

While equity returns (using the S&P 500 index) have returned more than 13% over the 10-year period ending 05/31/2020, the returns over the last 5 years have returned about 9.9% and are negative 5% for the first 5 months of 2020. The prior 10-year period for the S&P 500 was a negative decade; so, over the past 20 years, the S&P 500 compound average return is about 6.0% (5.94% for the period 06/01/2000 – 05/31/2020).

Fixed Income investments will continue to offer lower returns for short duration, low credit risk assets (between 1% – 2%), while achieving higher returns will entail greater exposure to risk factors (term and credit). Negative interest rates remain a possibility.

Readers interested in learning how the U.S. equity markets fared subsequent to historic declines, can watch a recording of a webinar presentation given jointly by Sax Wealth Advisors, LLC and Dimensional Fund Advisors, including a Q & A session addressing top-of-mind questions of investors and market observers related to current market conditions.

Greg Duffy is a seasoned financial professional with over 40 years of experience in the financial services industry including banking, insurance, investment advisory and wealth management.  He can be reached a