Why is this year different from all other years?
by Baruch Labinsky
The short answer is – it isn’t necessarily different but it feels different! Whereas we should always be assessing our lives and plans, momentous and calamitous events tend to give us a bigger impetus. As I direct this train of thought specifically towards our finances, one of the four questions you might want to consider is how might current events impact us personally on a financial level both in the short and long term? There is no doubt that these recent events will affect worldwide growth and prosperity – but how can we make sure that they do not have a detrimental impact on our livelihood, standard of living and backup plan? How can we make sure that our strategies aren’t derailed by market volatility?
Where is your bank located and how would you access money in an emergency?
People with assets in Russia and Ukraine can’t access their funds, and forex operations are restricted in a number of countries. The speed with which things we took for granted as ‘normal’ can change should be a wakeup call for us all.
During the initial stages of covid many banks were shut, which meant that even if your branch was close to your home you could not visit your banker there. Despite that reality, there is a bigger disadvantage having the majority of your assets in a different country when dramatic events are happening. As expatriates, there is often a comfort and familiarity factor with having investments located in your home country. However, I always advise that at least your emergency fund, and a percentage of your assets should be invested in the country you are living. Not only is access usually easier, but it reduces foreign currency exposure and ties your future into the local marketplace of inflation and growth expectations.
What is your market exposure?
Are you comfortable with your exposure to riskier classes of assets such as stocks, real estate and crypto. As of 7/3/21 we are in a bear market which, in certain sectors, is down over 20% from previous highs. Long term, the market will likely recover. However, you must ask yourself if you are comfortable with your exposure to higher risk assets (like stocks)? We always put together our risk assessments in periods of quiet, when we think we understand how we would react under extreme volatility, when unexpected events occur. Now is the time to evaluate, given the fact that some of these events have taken place, and could snowball into other events that we can’t really predict. The questions we need to ask now are whether we are comfortable with how our money is invested, where it is located, and how our backup plan looks. Risk is often measured by the things that we can’t even imagine happening.
Whenever there’s general instability people need to ensure they have enough savings to weather significant changes in the global markets and economy. It is crucial to be aware of the bigger picture in the world, as our huge planet is interrelated. The war in Ukraine will impact on food prices throughout the world and will likely cause inflation. Do you personally have enough of a cushion and if not, should you increase your savings rate now to prepare for the future?
If your investment plan is properly constructed, your exposure reflects your needs and stage in life. Take a deep breath and stay the course. If you are considering selling because you are nervous, then stop yourself – don’t panic. If you feel you must sell, consult with someone before acting rashly.
What is the purpose of your money?
I believe that the purpose of our money is to help us accomplish our goals and give us the freedom to do the things we need and want. To accomplish our ambitions, it helps if we understand where money fits in and impacts on our short and longer term activities. Are we using our resources for the latest fad, spending our entire paycheck and creating stress both now and in the future, or do we have a clear vision of what’s important in our lives and how money can help us accomplish those goals?
All of which brings to mind the tale of the Wall Street guru who vacations on a tropical island. He is very impressed by a local fisherman, and suggests that he start expanding his fleet, build up his business, maybe eventually go public to make a ton of money, so that he can then retire to a nice tropical island!
When we have clarity as to what our goals are, we can construct a plan to achieve them.
Do you have the answers?
Pesach is the holiday when we ask questions – not necessarily to hear the answers but to engage and involve the participants around our Seder table. I hope the questions contained in this article will provoke more questions and lead to greater clarity regarding your answers. Use that clarity to make sure you have a financial plan that reflects not only your individual situation and direction, but also takes into account events that we can’t predict. If you aren’t sure your finances are correctly structured, consult a professional, and make sure they help you to find the answers that you are in search of.
Chag cherut sameach.