Mentor RIA Consulting
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|Posted on March 19, 2020 at 2:38 PM|
The seemingly endless market drops that have been a feature of the so-called pandemic have many investors and some advisors in a panic. For those investors it is not a question of simply rebalancing and investing cash at the bottom of the market (since we don’t know where or when that is). Many are so fearful that they may abandon common sense and their investment plan to hope for a magic bullet that will restore their investments. This generally doesn’t work.
More importantly, though, one should be concerned about where things are going with our extremely unprepared and overleveraged governments. Government spending is, at least in part, based on expected tax revenues which in turn are premised on economic activity and our earnings. When that activity drops precipitously, surprise – sales and use tax receipts drop as well, not to mention income and the taxation thereof. This means that all those rosy projections concerning tax receipts are for naught and the governments, which almost uniformly lack the will to cut spending, will seek to increase taxes even further. A tax increase will encourage a downward spiral that will not be easy to turn around even when the market begins to recover and rebound.
Finally, what about your own job? Whether you run a business or are an employee, the general shutdown we are experiencing in many areas and business sectors is already having an impact. Even if you have an emergency reserve and don’t currently live paycheck to paycheck, the longer the restrictions and limitations are in place, the harder it will be to pay one’s regular bills. The ongoing costs of utilities, internet access, rent, food, household goods and more won’t go away entirely, and may not be reduced much at all. How long before you experience the personal pain for daily living, let along the pain of destruction of retirement savings and ultimately a future of even greater government overreach?