We are currently somewhere around day 60 of our family’s quarantine, and the country is inching closer to reopening. Over those 60(ish) days I worked remotely from home, and held a TON of meetings with clients, colleagues, and others over Zoom. As you can imagine, everyone has handled the last two months a little differently. Some investors are more comfortable with volatility than others.
I had a chance this week to think back on the sentiment in general. How people are doing and feeling. How they’ve handled the last few months. What their financial situation is like right now. And while everyone has handled quarantine and the Coronavirus pandemic differently, there are some trends I’ve noticed across many of my conversations. I thought these trends might make an interesting blog post, so here are a few things that have been on my mind recently.
Will These Structural Changes Really Happen?
There’s a lot of talk out there about how the COVID-19 experience will change the way we work, play, and live forever. Speculation abounds that large corporations will ditch expensive office locations in droves, and the demise commercial real estate is a foregone conclusion. Why pay lofty rents when your team can work proficiently from home?
Professional services like healthcare, accounting, and financial planning are often included in this conversation too. Now that we’re all using videoconferencing technology like Zoom, why drive to see your CPA when you can conduct the meeting from your living room?
Perhaps some of this will take hold. But other than being a little more comfortable in a video conference, my guess is that in 24 months not much will have changed structurally. We’ll just have a few more options available.
I take this stance because we’ve been working with clients over Zoom at Three Oaks for several years now. Is it convenient? Absolutely! But it’s not a replacement for face to face relationships or a handshake. Zoom rooms don’t replace the camaraderie your team gets from a casual chat in the break room. And it makes group happy hours a lot less interesting.
Humans crave acceptance and naturally prefer herds. It’s why so many of us prefer to live in jam packed cities like New York and San Francisco. Its comfortable being close to other creatures like ourselves. So yes, more fortune 500 companies will downgrade their office space and offer more work from home options. But I don’t see the many of them swapping the energy that’s created from face to face interaction with an isolated home office & laptop. At least not entirely.
Thinking Long Term is REALLY Hard
Right now my wife is pregnant with our third kid. One thing she likes to tell our friends and family is that the only reason we’re having a third is because she blacked out during the delivery of the first two.
Our brains are wired to forget painful memories. It’s a coping mechanism.
When we take on new clients at Three Oaks, we spend quite a bit of time working through monthly cash flow. It’s really fundamental to our financial situations, and it helps frame the discussion of how much to set aside for a cash safety net.
Typically we recommend keeping anywhere between 6 and 24 months’ worth of cash on hand as a safety net, just for a rainy day. Over the last several years, I can’t tell you how many clients scoffed at the idea of keeping so much cash in the bank uninvested. With yields so low, it seemed foolish to keep so much money out of the market.
Looking back now, the same clients are thrilled that they funded their safety net first. Not because they avoided the market collapse in March, but because they can sleep at night if they end up taking a 15% or 30% pay cut. While they might attempt to collect unemployment if they’re furloughed or laid off, they’re not begging the bank for forbearance on next mortgage payment.
Is this the first recession we’ve experienced? Not by a long shot. So we should know that it’s important to keep some cash around for a rainy day. But we don’t. It’s easy to forget the emotions involved in tough economic periods. Remember, our brains are wired to forget the pain.
The Boring Stuff Is The Important Stuff
Like the cash safety net example above, a lot of solid financial planning is relatively boring. Getting more life insurance. Setting up powers of attorney and maintaining a list of contacts if anything should happen to you.
But when things get crazy, whether it be from pandemic, financial crisis, or war, it’s the boring items that often become the most important.
On top of that, they’re often the most neglected because they’re boring. A lot of people we work with get really excited about the concept of positioning their portfolio for long term growth. Getting them to sign a beneficiary designation form? Pulling teeth.
I didn’t intend for this to be a shameless pitch for working with a financial planner, but the accountability that a professional can provide can truly be priceless. It’s hard to think long term. For many of us, it’s also hard to take care of the boring stuff.