Cards on the table: I’m writing this in a sort of stream of consciousness way (with pretty minimal editing, no less) because I have no idea what to say except a long political rant — which I started and then deleted because none of us have the energy for that right now. Nor will any vitriol and bewilderment change votes already cast.
Instead I’ll try to keep this post on brand and ask where the election (and perhaps its uncertainty) leaves us all financially.
Well, as I type this, the betting markets have Biden at nearly 80% odds of winning. So I think perhaps the uncertainty of the outcome isn’t going to be an issue, even if it devolves into lawsuits after the official results are announced.
At most, the uncertainty probably just means a postponement of market effects. Because everyone seems to be saying that historically, a Democrat win means the markets go down.
Which I guess makes sense, since most liberal candidates pledge to tax corporations more and otherwise hold them accountable with things like environmental regulations. So profits are bound to go down under a Democrat — if that person has a cooperative Congress, anyway.
So what about the market dip?
I’m not too worried about it for my own purposes. Watching my portfolio — which only just finally got to the six-digit mark last month — take a hit will hurt, to be sure, but my retirement is still about three decades away. Which is plenty of time to recover if this stays a mere recession.
No, I’m more concerned about the people nearing retirement age, who will have to drawdown on reduced portfolios in the next couple to few years. And of course the FIRE movement has become far more widespread. Which means that people who already took the leap are going to hurt big time. (And given everything going on, their backup plan of “just getting back into the workforce” seems potentially a lot less viable.) Meanwhile, those who had plans to jump the working world ship in the next year or two may have to adjust.
I guess yet another reason extreme frugality could make a comeback?
But of course a down market could also mean companies downsizing — more than some already have, of course. Which will worsen the recession, prolonging the pain on multiple fronts. So let’s hope the latest Congress has some ideas and tricks up its sleeve.
Granted, I’m sure any new measures to combat the financial pain of the recession will mean our national debt skyrockets, but on the other hand, I feel like that’s better than massive amounts of the population going hungry/losing their place to live? Maybe that’s the liberal in me.
And of course, interest rates will — I presume, since I understand very little about economics — remain at rock bottom. Which is great if you want to buy a home and upsetting if you’re trying to earn interest on savings.
I’m sure the rates will convince some people to play the market while prices are lower. Not the worst idea, I guess, though people should remember that lower prices on stocks doesn’t mean “the lowest stocks will go.”
Personally, I’m going to still throw as much money at retirement as I can — even if it feels like bailing out water from a boat with a hole in it — and hope that Vanguard knows what it’s doing in terms of mitigating damage and perhaps even taking advantage of dips in more valuable stocks.
But I have that luxury because I already have a good chunk of money in my various saving accounts. I have almost 10 months’ of my emergency budget expenses in my emergency fund and around a year’s worth in savings. Then I also have a vacation fund, a pretty good sized car fund, etc.
A lot of people aren’t so fortunate. And even people who followed the alleged gold standard of having three to six months’ expenses saved up… Well, they’ve hit a financial wall. At full force.
So I think after this experience, the standard won’t be three to six months’ worth anymore. I think more people are going to want to have/advise others to have a year’s worth.
Obviously, some people will protest that that’s keeping too many assets liquid when minimal interest is being earned. They’ll say some of that should be in the market — or given what the markets will look like, maybe rental properties or other investments — rather than losing value to inflation. And logically, that does probably make more sense. The likelihood of someone being out of work for a full year (especially once this recession resolves itself) is unlikely.
But terror takes deep root, and financial terror is no exception. I think a lot of people are going to remember the worry and uncertainty, and they’re going to want a cushion that lets them talk down the “What If” questions that plague us.
Of course, you have to figure out your own comfort level — and ability to make progress. If all you can manage is one month’s expenses, you’re still much further ahead than many people. Three months’? Even better! But if you have the ability to keep socking away money, I would beg you to do it.
All of that said, of course, this doesn’t address the people who are financially at risk now.
If the Democrats do flip the Senate, I think we can count on new unemployment bonuses that could allow these folks some breathing room. But I’m betting that even liberals’ ability to justify hefty spending is going to peter out before a viable, widely taken vaccine.
But that’s looking dubious. So I guess I have to pray that Republicans can — as they did in the spring — overcome their displeasure at extreme spending enough to help their constituents financially.
At any rate, hopefully anyone currently struggling uses any bonuses or stimulus checks for mortgages, utilities, car payments or savings (to cover any future housing costs or vital car/home repairs). In other words, only toward debt where actual assets or necessary services can be taken away. Credit card debt and even student loan debt should be lowest on the list of priorities for making payments.
In fact, now is a good time to give the ole card company a call and see if it’ll lower your interest rate. While banks may not want to issue new loans to unemployed folks, it wouldn’t hurt to call and ask about refinancing your car loan — assuming the current rate is significantly lower than what you have now. Maybe hinting that you might not be able to keep paying at the current rate will be persuasive.
But overall, I think everyone should buckle up — even people who are finally back to work. If Biden does indeed win, given the nationwide surge in cases, we may well be looking at a nationwide lockdown (including businesses being shut down again) until case numbers die down — and maybe until we learn our lesson about things like unmasked, non-socially distanced parties.
So yes, the economy — and therefore the number of available jobs — is likely to suffer initially. As I said, hopefully Congress will approve stimulus packages. If not, well… Things are going to get very ugly for a very indeterminate period of time.
I guess in the end, I can only tell you guys what you already know/are probably doing: hold onto your savings, don’t let lifestyle inflation creep in too much and pray for a vaccine that people trust enough to actually take. Oh, and those of you who have investments you actively manage… I guess now is a good time to assess the ratio of stocks to bonds and/or which industries you’re invested in.
In the meantime, until the last few states’ ballots have all been counted — and probably been recounted at a candidate’s request — I’ll be over here stress eating. But on the bright side, I’m supporting local restaurants.
How’s everyone holding up?