The market was up again last week, and is still positive on a year over year basis. This seems absolutely crazy, given what we see and hear about restaurants closing, retail chains filing for bankruptcy, unemployment figures, and other anecdotal news.
There are a couple of factors involved. As I’ve said, the markets are forward-looking, and reflect the expectation that businesses are reopening and the economy will recover in the second half of this year. Data that supports this is the reduction in new unemployment claims and increased consumer spending. Also important is the role of government intervention, most especially the Federal Reserve Bank’s efforts to provide liquidity to capital markets. Finally, as we’ve explained in previous podcasts, we often define the market by the S&P 500 Index. This index is cap-weighted, meaning the larger the company, the more impact it has on value of the index. So Apple, Facebook, and Amazon impact the index much more than the #500 stock in the index. Those big tech companies aren’t being affected the same way our local restaurants and main street retailers are.
While this is good news for your investment portfolio, what does it all mean for the rest of your finances? If you are in a position to do so, continue to build cash reserves. The recommendation is to have six months of living expenses available. Over half of our country can’t meet an unexpected $400 expense. If you need help building that savings, start small. Open a savings account or money market that you don’t see when you check your account balances. Then put a small amount each paycheck into that account, preferably by direct deposit if your employer will allow split deposits. After a few months, see if you’ve missed the money. If you haven’t, increase the amount going into savings, then check again a few months later. Keep increasing the amount you are saving until it begins to impact you.
This is also a great time to evaluate your life insurance and disability coverage. If you are older, it may be time to consider long-term care insurance. Believe it or not, insurance carriers are still issuing policies during the pandemic. While we will focus on types of life insurance in another episode, just remember that term insurance is fairly inexpensive. A very rough starting point for how much you need is 15 times your salary. That amount is adjusted based on the number of dependents you have, how much you have in savings, and other income your family may have.
While you’re looking at insurance coverage, also consider your estate plan. All adults should have a Power of Attorney, which allows someone to make financial and legal decisions for you if you are incapacitated. You also need a Medical Power of Attorney and Health Care Directive, giving someone the ability to make medical decisions for you, and also providing them guidance for end-of-life decisions. Finally, a will appoints your personal representative, the new term for what used to be called an executor, appoints a guardian for any minor children, and spells out the distribution of your property. Remember that your will is trumped by beneficiary designations on retirement accounts and insurance products. So if you have gotten married or divorced, or had children, you might want to confirm your beneficiaries reflect your current situation.
If you want to learn more, join us for one of our virtual education events. You can visit us at covingtonalsina.com or our Facebook page to learn more.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
CovingtonAlsina and LPL Financial do not provide legal advice or services.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.
And if you don’t have a financial advisor, or you haven’t heard from yours, come talk to us. This is Ann Alsina with CovingtonAlsina.