Riding out the storm
Financial planner talks appropriate risk levels
Carolyn McClanahan, a physician turned financial planner and founder of Life Planning Partners, discusses the financial impact of the coronavirus.
A: Actually, not at all. But we’re very proactive with clients and send out information via email. It’s not guaranteed, but when you look at history whenever there has been an epidemic — think Ebola, SARS, MERS — the market always drops, and then after things subside, it goes right back up.
A: We remind them that we have them invested at the level of risk they can tolerate and want to take, and no more. Let’s say a client is retired and has 30% invested in stocks. If their stock allocation dips to 20%, we bring it back up to 30%. Same goes for a younger client who’s more heavily invested in stocks. We rebalance their portfolios in situations like this.
A: Not so much on investments, but it does help shape how we do their financial planning. Part of the problem is that people spend a lot of time worrying about a future that’s unpredictable. Our main approach is to make sure people are living a happy life now. For example, if someone hates their job, we have them focus on finding a new job instead of socking away money to retire early. If they’re happier at work, they’ll work longer and be more financially secure. To me, the coronavirus is yet another wakeup call for folks to tackle fixable risks.
A: Your overall health, for one. For example, the flu kills a ton of people every year, and we have flu shots available that most people don’t get. Or say you’re a smoker, or you don’t wear a seatbelt while driving. Those are fixable risks that people don’t think about day to day that put them at much bigger risk than something like the coronavirus.
A: It’s always important to have an emergency fund, especially since we’re seeing forced quarantines and school shutdowns that could reduce your income. You need to have the resources to be able to afford that.
It’s also important that you’re insured appropriately. That’s a huge one. Young people are really bad about having disability insurance. What if you get seriously ill and you’re out of work for a long time? An emergency fund is great, but you need to replace that income if you can’t work. If you have dependents, you also need life insurance. With the coronavirus, most of the people it will affect are older, but (young people also have died).