This may be a good time to include a little more risk in investment, financial planner says
By Deborah Jeanne Sergean
From unusual circumstances can come unusual life lessons. The COVID-19 crisis brought a few examples of financial lessons to learn.
“This pandemic has been something we’ve never experienced before,” said Scott Klatt, certified financial planner and partner at NorthLanding Financial Partners, LLC in Rochester. “From a market standpoint, it was the fastest decline in the stock market and one of the fastest increases we’ve seen.”
Klatt has been in the financial business 35 years.
He said that while stock prices were down, it would have been a good time to invest, although many of his retiree clients tend to be more risk averse with their investments. But this may be a good time to include a little more risk, Klatt said. The bank CD is one of the safest investments around, but currently offers extremely low interest, according to him.
“We’re shifting from safer investments like CDs and bonds to high quality blue-chip stocks like Home Depot and AT&T with a lien to use the dividends to replace that income they may not have received from their CDs,” Klatt said. “You can get a 3.5% dividend, which is equivalent to a CD. Some may say it’s risky because I’m buying a stock, but that’s true if Home Depot is going out of business. You rarely see a company that size and that solid go out of business.”
That’s especially important if a client relies upon the interest from their CDs to pay bills.
Klatt said that COVID-19 also underscored the importance of reassessing the budget. Since travel and entertainment budgets have likely gone down, consumers can move that money to other areas, like paying down debt or investing it.
George Conboy, chairman at Brighton Securities in Rochester, also recommended that a home equity line of credit or a line of credit against one’s investment portfolio may provide a quick way to access cash to prevent liquidating investments.
“If you have that home equity line of credit in place, most banks won’t charge you unless you use it,” Conboy said. “You get the money today and you don’t pay any interest until you borrow it. You can use the line of credit today to replace something unexpectedly lost, like your car is totaled and the insurance won’t give you enough to replace it with a new one.”
Even if the loan isn’t paid off right away, the home equity line of credit is likely much lower interest than a typical car loan.
Conboy said that it’s also handy for people who know they’ll receive a bonus in the first quarter of the year, but don’t want to book a gain in December by cashing in an investment.
Conboy also said that COVID-19’s effects on investments should help people realize that they should take the “long view” with their “long dollars.”
“It doesn’t mean take the long view with every asset,” he added. “If we expect changes that are a short-term thing, don’t have a short-term view with your long-term money. Many of those investments that tanked six weeks ago have recovered.”
Ken Burke, CPA and personal financial specialist is president and CFO of High Falls Advisors in Rochester. He said that planning ahead should be the biggest take-away lesson from COVID-19, including the need to have enough cash in savings to cover several months’ expenses.
People should also realize that changes in the financial world can happen quickly.
“You want to be able to ride out the market declines and volatility,” Burke said. “Who would have thought we’d have a global pandemic and world governments would shut down their economies? Just as there’s uncertainty with these events, the market response is equally uncertain. Who would have thought that at this point in the year, the recovery would be almost as quick?”
Although investment still bears risks, Burke said that a surge of new jobs in May — 2.5 million non-farm jobs, to be exact — indicates the economy is headed in the right direction.