Broker Check

The RFG Weekly Wealth Report

April 07, 2020
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The Week on Wall Street

Modest declines in stock prices this week masked the volatile inter- and intraday price swings as investors digested weak economic data and a warning from the president that the worst days of the COVID-19 pandemic may still lie ahead. The Dow Jones Industrial Average slipped 2.70%, while the S & P 500 dropped 2.08%. The Nasdaq Composite Index declined 1.72%. The MSCI EAFE Index, which tracks developed overseas stock markets, slid 2.76%.

FACT OF THE WEEK

During the 1920s, Continental Bakeries Vice President James Dewar wanted to create a new product that was simple and would improve efficiency. On the way to a meeting, Dewar discovered the name for a new product, a cream-filled sponge cake, on a billboard for Twinkle Toe Shoes. And so, on April 6, 1930, the Twinkie was born.

MARKET MINUTE

The Quarter in Brief

The spread of COVID-19 sent stocks tumbling in the first quarter as health-related and economic costs of the pandemic began to mount. Stocks remained under pressure, despite the Federal Reserve's lowering of short-term interest rates and the government's stimulus efforts through the Coronavirus Aid, Relief, and Economic Security Act (CARES). The DJIA sank 23.2%, and the S&P 500 dropped 20% on the quarter.

The COVID-19-related volatility in the market has left all but a handful of sectors in a prolonged period of uncertainty. With millions of Americans staying at home to "flatten the curve" of COVID-19's impact on people, businesses are coping with either closing for the duration, altering practices, or facing staffing issues.

Oil Turbulence

The oil market dominated the commodities headlines during the first quarter. The failure of Russia to join Saudi Arabia in supporting lower oil production targets left Saudi Arabia fuming and responding with an announcement of its intention to raise oil output. Oil prices plummeted on the news, contributing to the stock market's woes. While lower oil prices represent a boon to consumers in the form of lower gasoline prices and relief to companies with high energy consumption (e.g., airlines, chemical), they also pose a risk to the American energy industry.

Should low oil prices persist, it may lead to lower capital expenditures, labor force reductions, and troubles in the credit markets as less-capitalized companies struggle to meet their debt obligations. As the quarter came to a close, there was some speculation that President Trump would take a more significant role in working with Russia and Saudi Arabia on production targets.

What's Next

It is difficult to see, in the middle of the COVID-19 epidemic, precisely what the full impact will be. Suffice it to say, the cost in human terms has been staggering so far and seems certain to affect at least part of the coming quarter.

As people and businesses adapt to extended periods of quarantine, the only thing that seems clear is that no aspect of American life will be unchanged. CARES Act stimulus checks are on the way for millions of Americans. The Federal Reserve has lowered interest rates. While state and federal level representatives continue looking into further measures, only two things seem inevitable: 1) there are plans for future action, and 2) we will all breathe a sigh of relief once this crisis subsides.

FINANCIAL STRATEGY OF THE WEEK

April is National Financial Literacy Month, and that means it's a great time to reflect on our finances and think about what we can do to improve financial literacy for our children and others around us.

One of the best places to start when it comes to improving your finances is the basics; no matter how advanced we think we are, a quick refresher never hurts. Here are some of the basics to get back to during financial literacy month:

Live Within Your Means

The first rule of personal finances — and one that is also the most basic — is to live within your means. Every month, you should earn more money than you spend. There should be a little leftover at the end of the month, even after you set money aside for savings and other fundamental expenses for the future.

Future Savings

While you are living within your means now, you also want to save for the future. Preparing for what's next is a vital part of your financial literacy journey. Consider a few helpful tips to include in your savings plan:

Retirement Contributions. Looking ahead to planned expenses and saving for them a little at a time. Saving for the future is a significant part of creating your financial success, and your savings plan should probably include some investing. The easiest way to do this is through a retirement plan. You may even receive a tax advantage that helps you to maximize your ability to save for the future.

Protect Your Assets. Start an emergency fund or build up your existing fund for unexpected expenses. You never know what's coming, and savings can help you meet insurance deductibles, as well as pay for some of the costs that come with life. You may forget to protect the assets you already have or may not even consider insuring certain assets. Commonly, many of us will opt out of additional insurance coverage to avoid paying the premiums. When life's difficult situations appear, it's always best to fall back on an existing safety net and avoid disrupting your savings growth.

Insurance Protection. You pay your premiums; when something happens, you pay your deductible, and the insurance company covers the rest. The result is that your hospital stay will be more affordable and will leave you with funds to make repairs on a home damaged in some way or cover another unforeseen expense. Also, don't forget that liability insurance can provide additional protection for those who are concerned about lawsuits draining away their wealth.

Get Out of Debt. It's best to develop a plan that will help you to avoid having to borrow in the future. If you already have existing debt, the best place to start is by creating a plan to pay down your current balance and avoid paying high interest rates in the future.

Set Priorities. Don't forget to set some priorities. It's easy to overlook this as an element of financial literacy, but it is a vital part. Indeed, you can improve the way you spend money when you consider your priorities. Discover which areas in your life hold the most value, and commit funds allocated to those priorities first. Prioritize your current expenses from the highest (include bills, premiums, and savings contributions) to the least significant, working towards removing any unnecessary spending over time.

As always, please contact my office with any questions or financial concerns you may have.