Chanel showcases it’s new look for 2020

The world is going mad.

Entire countries are in lockdown, supermarket shelves are being emptied faster than you can say COVID-19 and people are going to war over toilet paper.

This panic has spread to financial markets. Which, unless you’ve been living under a rock, are in free fall.

Companies across numerous sectors are on life support. Just ask Richard Branson or any airline owner.

So what happens next? The Fed (and its sibling the Bank of England) steps in to prop up the economy with an emergency rate cut.

Fed responds to financial crisis with rate cut

WTF is that all about? 🤔

Interest rate cuts are the go-to adrenaline shot for modern central bankers. They provide much needed stimulus by encouraging cheaper borrowing and helping consumers through lower interest payments on loans (e.g mortgages).

A rate cut is typically seen as a positive for equity markets.

Yet, despite a momentary rebound after the first rate cut, markets eventually ran out of steam following Trump’s Oval office announcement last week.

S&P 500 stock market performance in 2020

The Fed approved a $700 billion bailout on Sunday to avoid a complete economic nosedive.

While this has all the hallmarks of the 2008 Financial Crisis, many of you are probably wondering: what does this mean for my money?

Time to watch your financial health 👀

I’ve been asked many questions on the impact by friends and work colleagues, so I feel compelled to write some thoughts.

Now, this is not meant to be financial advice, but rather considerations to some common questions:

1) I’ve got spare cash in my bank account. What should I do️? ✌

Enter the life of your typical millennial.

Scarred by the 2008 Financial Crisis, there exists no better pastime than keeping fresh powder for that spontaneous trip to Latin America.

Yet, with the Fed printing $700 billion (yes literally ctrl+p dollars) we will likely see some additional inflation (or hyperinflation).

Inflation is already at 2.3% in the US and printing money out of thin air — lol — could see that planned Inca Trail turn into a ‘weekend in Seattle’ style break.

So, to make sure your Spring Break plans don’t get crushed, you may want to keep your money working for you instead of sitting in a lifeless savings account — or else you could be letting the Fed bite into your hard-earned dollar.

The question you should ask yourself is: ‘how much cash do I actually need for a rainy day?’

2) Should I buy the stock market dip? 💸

I’m unable to (unfortunately) predict when we will hit a bottom, but a prudent approach is to invest a portion of your money in the stock market over time. Let’s say you have $10,000 you want to put to work, removing the emotion through a bi-weekly $500 purchase may serve you better than timing a dip.

If there are movements in price, by building your investment through regular instalments, you are effectively smoothing the entry price in a strategy called Dollar Cost Averaging (more info here).

What this means is you’ll effectively remove volatility, risk and emotion from investing.

Focus on the long-term, and remember your financial health is as important as your physical health.

3) Should I invest Crypto products or Bitcoin? 😎

Cryptocurrencies like Bitcoin are decentralized digital assets which makes them immune to government or central bank manipulation and interference.

The entire Crypto ecosystem was built around a philosophy to protect against uncontrolled ‘printing’ of money and give people more power. I like to call this the non-infected money game.

Now, for full disclosure, I get asked this question a lot as I’m actually building an entire company, Donut, behind the idea of democratizing access to this new crypto-world.

Consider whether it makes sense for you to start building an exposure to this asset class in the long-term. It can be volatile but offers higher potential upside. Our approach has been to build:

(i) a rounding up product that allows you to invest your spare change from your daily coffee purchases into Bitcoin (a $3.50 ☕️ = $0.50 invested)

(ii) a Crypto Savings product that allows you to earn up to 4% APY interest

While the first product lowers the hurdle to get started, the Crypto Savings product works through a secure process of converting your dollars to ‘digital dollars’ and supplying this to a pool of borrowers prepared to pay a higher interest rate. You can think of this as putting your dollars away in an account, another individual offering up to 4% interest on your digital dollars, but this time no middleman (i.e. bank) takes the difference. The net result, you get a higher return.

I’ll cover the risks of these products in a future piece but they currently represent an alternative way to earn a much higher yield than is currently available through traditional channels.

If you’re curious, you can check out Donut on the US App Store.

4) Should I refinance my mortgage? 🏠

If you’re a homeowner, this may be a prime opportunity to refinance at a lower rate.

Variable rate mortgages will instantly benefit from the Fed’s cuts, but fixed-term mortgage owners may want to use this time to reduce their monthly rate

Now that rates have fallen for a second time to 0%, you may be able to get a great deal. Though, don’t expect a fast decision from banks.

5) I’m saving the maximum amount for my 401(k). Should I save less? 👵

This is a hard one. If you need cash to live, then do what you need to do. But stashing away what you can in a tax-sheltered account may be beneficial for the long term.

Unless you’re in a real emergency you should keep up saving through various means. Though if recent market volatility has worried you, you may consider a higher allocation of bonds.

Rounding up 👏

In closing, the coronavirus has the world going mad but it’s an equally important time to check your financial health too.

There are many different approaches to interpret movements but a wise friend (aka Warren Buffett) once said “widespread fear is your friend as an investor because it serves up bargain purchases.”

New ways to start earning yield are emerging, and keeping financial discipline, in my experience, is what matters most!

Have some thoughts of your own? 💭

Would love to hear your point of view. Feel free to reach out to me or stay in-touch through my newsletter below.

I’ll keep you updated on personal finance, the new crypto-finance world and some of my favourite links!

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*Note: the above information is intended for informational purposes only and should not be construed as financial advice. Please see an investment adviser as circumstances may differ from person to person✌️*