What’s Your Plan with All the Free Money?

I didn’t get a direct payment from the federal government because of Covid-19.  Some of you who are still working did but I’ll bet most did not.  This isn’t about welfare, rather that every one of you has been propped up financially by federal spending whether you realize it or not.  In order to truly profit from it you have to plan for what’s next.

Obviously March of 2020 caused plenty of financial panic.  After the exuberance following historic market levels in February, many reverted to a feeling of despair with losses approaching 30% or more.  As nonsensical as it seems, the market has now rebounded so we should all be breathing a collective sigh of relief.  Yes, the US government flooded the economy with cash so everyone is out spending money they didn’t earn, although that’s not what really created additional value in the market.

There are several reasons for it but I’m going to focus on one that explains is better than anything.  The Federal Reserve is buying loans so banks can keep lending and junk bonds from companies that might otherwise fail without consistent revenue.  News of something like this gives investors confidence that a recovery will come quickly and stock prices rise because of future optimism, not because of fundamental value.

It can be summarized pretty easily.  Money was created out of thin air and funneled to major corporations which translated to your IRA or 401(k) growing.  Yes, you all received a federal bailout.  But the party won’t last forever.  With nothing backing it up, the stimulus will run out and things will normalize.

Anyone who got the one-time $1200 probably doesn’t have it anymore.  Enhanced unemployment payments stop at the end of July.  Paycheck protection for small business will fizzle out and at some point both businesses and people are going to have to go back to earning money the old-fashioned way.

Just like the above, you won’t have your balance forever if you just sit on it.  Unfortunately you have to make a move to capitalize on your part of the bailout.  A stock isn’t worth a penny until you sell it.  I’m not saying you have to buy an annuity but what’s wrong with taking some chips off the table?

Back in March I told you all to sell bonds and suggested further protecting assets or even buying more securities.  Anyone who took that advice did extremely well.  How about this time?  Check out that post if you need a reminder:  Don’t Sell Stocks.  Do This Instead.

All of you got the level of assets you now have because of dollar cost averaging and consistently saving over time.  Retirement is a different game and traditional management advice suggests you play it the same way.  Nothing could be further from the truth but putting a realistic plan in place takes a big commitment.  Hesitant people don’t have to do it that way.  Since all of you averaged in to gain your wealth you can just as easily average out to preserve it.

Use the relief provided by the recent rally, however fake it may seem, to evaluate your goals and make a plan before things go the other way.  It may not be tomorrow or this year but you’ve all recently seen how quickly it can happen.  Call, email or comment below if you have anything to add.

Bryan