Written by Robin Taub
Wednesday, August 12th, 2020
The public health threat and economic fallout caused by COVID-19 has created a lot of uncertainty, and it's making us anxious. But anxiety can cause us to panic and make financial decisions that won't serve us well in the long run. What can you do during a crisis to rise above the panic and make sound financial decisions?
- It's important to not be reactive and make impulsive decisions when you're feeling anxious. Instead, take a second to reflect and get a second opinion on any major decisions or changes you're contemplating. You can turn to a professional like a financial advisor or planner, or a trusted family member, friend or colleague.
- Regain some control by reviewing your budget. Focus on the spending you can control to reduce anxiety.
- Cutting your budget to the bone may make you feel deprived and depressed, so try to reframe your situation to improve wellbeing. For example, if you can't buy bread or fancy chocolates because your favourite shop is closed, perhaps you can learn how to make them yourself. Or try to recreate some of your favourite restaurant meals at home. Not only will you learn a new skill or hobby, but you'll also save money.
- Don't check your investment account balances too often. If you own marketable securities like stocks, bonds, mutual funds and Exchange Traded Funds (ETFs), it's easy and tempting to check current market values obsessively. Due to loss aversion, meaning you're generally more sensitive to losses than to gains (even if they're equal in magnitude), you may end up panic selling when prices are low, just to make the pain stop! "When investors deviate from their long-term goals, they're locking in losses and missing out on the market rallies to come," explains Claire Tsai, a co-founder of the Behavioral Economics in Action Research Cluster at Rotman.
- Instead, recommit to your long-term investment strategy and stick with it on a disciplined basis. Rather than trying to time the market, stick to sound financial planning and investing practices, taking into account your goals, time horizon and risk tolerance.
- Put things in perspective and crunch the numbers. Look at optimistic, pessimistic and realistic scenarios. If, for example, you're worried about retirement, remember that stocks aren't your only source of retirement income. You may also have income from the Canada Pension Plan (CPP), Old Age Security (OAS) benefits, a pension from your employer or other sources of income. Depending on your time horizon, your investment portfolio may recover. No one knows how long this downturn will last, but over the long term, economies and the stock market do tend to go up.
- Finally, if you're in a situation where you need money now, consider other sources of funds or at least selling from the asset classes, like fixed income, that haven't declined as much.
 The following are key takeaways from a University of Toronto Rotman webinar about Navigating Personal Finances During COVID-19.