More than 36 million Americans have filed for unemployment in the Coronavirus pandemic. Some predictions suggest we could see as high as 15-20% of our entire workforce unemployed before all of this is over.
That would be devastating. Companies are fearful of declining revenues as a consequence of tightening demand. It is amazing that we all felt so proud of our economy (and our unique roles in that booming economy) just a couple months ago.
We were optimistic and couldn’t find any real cracks in what could be recognized as the strongest economy in American history. Here’s the good news: we have fresh memories of what that was like. We want it back!
This COVID-19 pandemic is unlike anything anyone has ever seen before. The massive layoffs are nobody’s fault. Employers have no cash flow due to the forced closures and employees were not let go due to any kind of bad behavior. So, how do employees and small business owners make great decisions as to how best to move forward?
This nationwide/worldwide “pause” is an incredible opportunity for some strategic thinking. We all get stuck in a daily grind that forces us to look at our lives in tiny time units. We execute the activities that are needed to be successful in our jobs and running our businesses. However, even before this crisis occurred, many of us have considered the consequences of technology, and the human behavior around that technology, changing our lives forever.
If you are a business owner for a product or service that might be on the decline due to these changing technologies and human behaviors, this could be an opportunity to either exit that business or modify it significantly to accommodate the changes that will be felt in the near future.
If you are an employee of one of these businesses, this could be your golden opportunity to get in on the ground floor of something new and innovative. I have seen this behavior with my own eyes and it is not the behavior of someone who is fearful, rather very entrepreneurial!
A couple examples of AI driven technologies that will soon disrupt traditional services are self-driving motor vehicles and robo-advisors in the financial services space. The benefits of self-driving cars will be felt immediately by seniors who felt they lost their sense of independence because their eyesight or reaction time was too impaired to drive themselves. Self-driving vehicles give them that sense of independence back. Robo-advisors have dramatically improved over the last few years and are now delivering investment management capabilities to the middle-markets successfully and even offer proactive tax management strategies.
Larger investors (I call them middle-class millionaires) will still want the downside risk management from a human, but will demand a level of service that is consistent with the kind of experience felt by multi-millionaires (an essential family office service level). Each of these examples demand the business owner (or the employee) begin considering their unique value propositions in the framework of a new business that is well prepared to seize this futuristic opportunity. Once defined, begin a campaign to either build it (business owner) or become an integral part of it (employee).
While thinking strategically, it is important to prepare for financial challenges and to consider behavioral change in order to survive. Financial planning is often associated with cash flow projections into retirement and following the “institutional” method of investment management. This method is certainly appropriate for managing foundation and endowment money, but is severely flawed for human beings. Typically, investors who follow this traditional method have two pools of assets that are managed to the investor’s risk profile (one that is qualified for tax-deferral and one that is in a taxable account). This process includes a systematic rebalancing back to the original allocations. Here’s the problem, institutions don’t have children to put through college, don’t retire, and don’t get laid off! A more “human-centered” approach to financial planning is necessary.
Consider creating an account for every purpose of your financial life. Each account will have its’ own unique distribution date, which will drive the risk management decisions. I am a strong advocate for a process called “aging” which allows for the greatest exposure to risk at the beginning while gradually moving assets to safety as the distribution date nears. The process comes from an innovative financial planning method called Dynamic Mapping. This process eliminates the need for risk profile questionnaires (which are completely ineffective) and prevents systematic rebalancing back to allocations that were flawed to begin with. It also allows the investor to feel confident about their access to assets when they need them most.
It is equally important to consider building reserve accounts that manage these risks that are out of our control. Building a contingency reserve (very conservative and liquid account), a bear market reserve (short-term US Treasuries), and an inflation reserve (Treasury Inflation Protected Securities, commodities and dividend paying stocks) will offer families peace of mind during challenging times. If you don’t have these built today, there is no better time than right now. Even though we are in the middle of uncharted waters (COVID-19 pandemic), there will always be surprises in the future.
If you should lose your job, here is a list of things to manage immediately. Some are very obvious, but others might surprise you:
1.) Complete any dental and vision work that you were planning while you still have coverage.
2.) Call a family meeting for a frank but not frightening discussion of the facts, and establish a plan of action.
3.) Get busy on day one looking for a new position.
4.) Rewrite your new electronic resume: learn how it’s done today.
5.) Rise and dress for work every day and spend the entire day on your search.
6.) Call in any chips you may have from friends who owe you their jobs.
7.) Evaluate non-IRA cash.
8.) Try not to withdraw from your IRA –doing so adds a tax expense.
9.) Restate your financial aid and grant forms for college aid as soon as practical.
10.) Consider transferring your child to a less expensive college.
11.) Put your toys in mothballs: boat, golf membership, second home etc.
12.) Assess how long you can hold out.
13.) Evaluate your retirement and Social Security benefits from the point of view that you might never work at this income level again.
The COVID-19 crisis will end. Businesses will become productive again. Let’s be prepared to deal with short-term consequences, like temporary layoffs, and build a solid strategy for dealing with future challenges by shifting our financial plans away from tired, ineffective methods and transition to a more human-centered approach that is as unique as we are.
About the author: Jeff Mount is president of Real Intelligence LLC. Jeff has been active in the financial services business for the last 25 years.
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