Strategies to Grow Your Wealth During the 2020 Financial Crisis
We are now multiple months into our lives being turned upside down by 5 letters and a number: COVID-19. And even though some states and counties are reopening, we have a long way to go to normal. As a result of the coronavirus crisis, we’ve seen increased volatility, drastic market lows, and rising unemployment numbers. Not surprisingly, many people are struggling financially or worried about their money.
Here’s the good news: you can be proactive about your finances and make the most of this time. Let’s look at 5 strategies you can use today to leverage the 2020 financial crisis and grow your wealth.
1. Reevaluate and Reposition Your Finances
A financial crisis is the perfect time to go back to the drawing board and reevaluate your current financial situation. Did you realize your emergency fund is too small? Is there more risk in your portfolio than you’re comfortable with? Do you have more debt than you should?
Take a hard look at your finances to identify ways you could save money—either now or in the long run. For example, now is an ideal time to:
Refinance your mortgage to a lower rate. Interest rates have fallen back to a historic low. As of June 1, 2020, the average APR for a 30-year fixed-rate mortgage is 3.378%. (1) If you’re looking to cut your mortgage payment, call up your lender and see if you qualify for refinancing. Just be sure to factor in closing costs, which could eat into your savings.
Take out a life insurance policy (or increase your current coverage). If you’re like most people, the coronavirus pandemic has you thinking a lot about life insurance. The good news is, it’s not too late to apply and lock in a low rate if you’re healthy. Life insurance rates are largely tied to interest rates and the market, so buying now while rates are low could be a good way to secure your family’s financial future. (2)
2. Stay in the Market
Investing seems like the last thing you want to do right now. I get it. But if you really want to grow your wealth, you need to consider investing. Investing is not about timing the market, it is about time in the market. Over the long run, stocks grow your wealth. It is just hard to see when you are looking at it day to day.
If we look back at the 2008 financial crisis, we see that stocks fell by more than 50%. (3) But the market began to bounce back in 2009. Those who persevered saw their portfolios regain their original value in two years and reach all-time highs in 2019.
We’ve had 12 bear markets since World War II. (4) And guess what? We recovered from every single one of them. I can’t say when a stock has hit its high or low. But I do know that if you’re patient and keep on investing, the market should recover again and you will not have missed it.
3. Check your Risk Tolerance
But what if you’re retiring soon and this financial crisis has made you realize you’re too heavily invested in stocks? In this case, it could be a smart move to re-check your risk tolerance and possibly adjust your investments to reflect how much volatility and risk you are willing to take.
4. Find Ways to Save on Taxes
Growing your wealth doesn’t necessarily mean making more money. One of the most efficient ways to maximize your savings is to minimize your tax burden. Fortunately, there are plenty of strategies you can use to legally reduce your tax bill.
Some strategies I use with my clients include:
Contribute the maximum amount to your tax-advantaged retirement and HSA accounts.
Use deductions to reduce your taxable income and credits to reduce your tax bill.
Consider tax loss harvesting while you are repositioning your portfolio.
Use charitable donations to minimize the financial impacts of required minimum distributions (RMDs).
5. Seek Help From a Financial Professional
If you’re not a financial professional, it can be stressful trying to figure out how to grow your wealth during the 2020 financial crisis. And considering all that’s going on in our world, you have enough to worry about. In times like these, consider connecting with a trusted financial advisor who can help you create a step-by-step plan for protecting and growing your wealth today.
SC Financial Services is a financial advisory firm that’s dedicated to helping you weather any financial storm that comes your way. Whether you need help managing your portfolio, creating a financial plan, or minimizing taxes, we’re here to help. Get started by contacting us at 480-214-9596 or info@scfinancialservices.com.