The recent health crisis caught many people and organizations unprepared for a number of issues. It is always best to be prepared ahead of time but learning from a lack of preparation can be equally important.
One important aspect of preparation is having a reserve account or emergency fund to see you through the rough patches. The conventional wisdom is 3-6 months of funding for recurring expenses. (Rent/mortgage, utilities, food, insurance, and loan payments (auto/credit cards) If you are self- employed, the reserve should be closer to 1 year if your employment is seasonal or dependent upon unknown factors. If markets decline quickly, it is best not to cash out investments or retirement savings to pay for known expenses. This may have you incur losses or tax penalties depending on your age.
As far as investments are concerned, bear markets can help identify quality. Losing less in a down market can sometimes be as important or more important than matching performance in an up market. A loss of 33% requires a subsequent gain of 50% to get back to even. A 20% loss needs a 25% gain, while a 15% loss needs 17%. Having the right mix of offensive and defensive positions can make your “team” perform better than average. Matching your investments to their intended purposes and time frame requires reexamination during periods of volatility. These past months have certainly fit that description.