How to Avoid Pandemic Portfolio Panic

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This pandemic is causing panic. Don’t make it worse by letting the panic trash your portfolio.

For the first time in my career, I’m hearing worry and panic from my physician colleagues. Some of that is from increased stress levels. Many are fearful of their patients and for their health and the health of their family members.

Many fear being transferred to a dangerous and unfamiliar job area. If they raise safety concerns or if they refuse to transfer they know there is a very real risk of being fired.

Money Matters

Having your financial house in order gives you options. Financial independence removes the worry over job loss. If you haven’t gotten your money issues straightened out, now can be a great time to do so.

Not only will you have options about how and whether to work. You will enjoy your work more. You will feel less stress at home.

Many of you feel stressed by financial concerns. Please let me share my thoughts on how to survive and thrive during this time of financial stress.

I want to help you and I’m not here to make money off you. My employer asked me to present to our employed physicians. I’m sharing my thoughts with you now too.

Portfolio panic adds to physician burnout.
Growing awareness of physician burnout

Baseline Medical Stress

We are seeing more articles about physician burnout in journals and blogs. Burnout and stress are big issues, especially in medicine. Three-fourths of us have wanted to quit at some point. Two-thirds of us feel burnout now.

Those symptoms peak at 45-55 age. That is a common demographic range for practicing physicians. 80% of us will not seek professional help. Many factors contribute to physician depression. Money issues are the #2 contributor to MD depression.

Don't let bad news induce portfolio panic in you.
Easy to get discouraged

So, physicians have hard, stressful lives and work. Burnout levels are high. And that is before the current crisis.

Pandemic Panic

As you are aware, there is bad news everywhere. Hospitals and clinics canceled elective cases. Elective cases make the most money. They provide the high-margin cases hospitals depend on. Reduced volumes and profit margins produce financial strain on hospitals and physician practices.

Many doctors are being reallocated to unfamiliar environments. They don’t feel competent or comfortable. They worry about not being good enough. We worry about liability.

They worry about bringing home a deadly virus to their family. Homelife is more stressful with working from home and having kids at home 24/7. Financial markets are in turmoil. We entered a bear market. We are heading into a recession, and some predict it will be the worst one ever.

There is job insecurity in medicine for the first time in a generation. Many heard of physician pay cuts, furloughs, layoffs, and terminations.

Remember all of the good news to avoid portfolio panic.
Have some hope!

Reason for Hope

Since you are still reading after all that bad news, let me reward you. There is plenty of good news to celebrate.

Physicians are still well-paid. Incomes are at the top 5% of U.S. households (>200K). Our knowledge and skills are in high demand. There is now a greater public appreciation of our value. Health care workers are now lauded for being the heroes they have always been.

Demographics, demand, and an aging population support forecasts of a physician shortage. Shortages strengthen future employment prospects for doctors.

Most hospital networks have enough cash on hand to cover months of expenses. The shutdowns cut many expenses. Revenue is flowing in from collections, ER visits, and telehealth work.

Furthermore, federal funds will help hospitals. Most hospitals and clinics will survive with prudent measures over the coming months.

We Need You

Health care needs your skills and work. Hospitals cannot provide their life-saving and life-enhancing services without you.

There are doom and gloom on TV reporting of financial markets. Fear not. Stocks will rebound. People will get back to work. Companies are as valuable now as last year; they are being offered at a lower price.

Yes, future cash flows may be lower. But people panic and overreact. Mr. Market has psychological problems and often isn’t rational. If you have money to keep investing, then do so. Guessing the short-term direction of the stock market is a loser’s game. Don’t play it.

We Will Survive

We will come out of the other side of this pandemic. Don’t take the following as gospel. This is a novel coronavirus and we don’t know a lot. Current facts may later turn out to be false. But based on what I’m currently seeing, we should survive as a people and as a nation. Our economy has a future life. That life will be bold and vibrant.

It is looking like the case fatality rate (CFR) of COVID-19 is currently hovering around 1%. It may end up higher or lower. There are likely millions of asymptomatic  SARS-CoV-2  infected people. Herd immunity and vaccines are both in our future. We will survive and thrive again.

Master your money to avoid portfolio panic.

How to Master Money

If you haven’t already done so, this is a great time to master your money. Health anxiety is normal. Financial anxiety is normal. I tell myself and others to feel it and accept it. Don’t act on it. Control what you can. Accept the rest.

Pull out or create your financial plan or your investor’s policy statement (IPS). Understand the plan. Stick to the plan. This isn’t time to abandon it or make radical changes.

Stay positive. Remember our future is bright.

Destroy your bad debt now.
Or maybe it is all bad?

Debt Dilemmas

Understand your debt and debt plan. Check your debt and plan to attack bad debt. Drop any car loans, car leases, or credit card debt.

Review your student debt plan. The CARES Act provided 6 months of payments for PSLF participants.

If you have private student loans and are not going the PSLF route, then consider a ReFi. Refinancing private student loans can be a smart move due to the current low-interest rates.

This is An Emergency

If you don’t have money set aside for emergencies, then this is a good time to start. I recommend doctors have about 6 months of living expenses set aside. This is “dry powder” for living expenses. Or if things turn out well, invest the money. How much you need will vary. But it is a lot of cash. This may be $50K.

Some balk that it is too much to “waste” in cash. But having that cash in times of change like now provides peace of mind. I find that peace of mind is well worth any “lost” investment opportunities.

Grow your portfolio by increasing income and cutting expenses.
The flow of cash

Flows Like Water

I sometimes use a bathtub analogy to explain money. The cash flowing in and out of your life is like water flowing into and out of the tub. Do you want it to drain and be empty? Isn’t that thought anxiety-provoking? I want my “tub” to “runneth over.”

We tend to focus on our salary. We may now worry about pay cuts, furloughs, or job loss. That’s all on the income side. There are things we can do. With our “free” time we can develop the value of our future income stream.

Increase Income

  • Increase the value of your human capital. Improve your skills with CME/ Training.
  • Consider a side income for you or your spouse. Telemedicine, grocery delivery service, etc.
  • But don’t forget that outflow is part of the equation. Slow the draining out the bottom of the tub.

Decrease Expenses

  • Delay paying income taxes until July 15.
  • Pause non-governmental 457(b) contributions to build up cash reserves.
  • Review variable expenses. Many expenses are dropping naturally (reduced movies, dining out, vacations, etc.)
  • Hold memberships. Good candidates are AAA, YMCA, Gym memberships, Audible, and Headspace. Headspace is now free for physicians for the 2020 year.
  • Decrease taxes by TLH (tax-loss harvesting) in taxable investment accounts.
Diversification helps reduce risks of portfolio panic.
Good assets to consider

Asset Allocation – Key to Avoiding Portfolio Panic

Review your Asset Allocation. That is one of your most important financial decisions and should be in your financial plan. It represents your ratio of stocks to bonds.

If you have no idea how to even start, read a good Personal Finance Book. Then consider Jack Bogle’s Formula (founder of Vanguard). He suggested an “age in bonds” formula would get you into the right ballpark. So if you are 40 years old but 40% of your long-term investment money into bonds. The rest (60% in this case) goes into equity (stocks).

Over time your portfolio will get more “conservative.” It will fluctuate less and be less susceptible to a market decline. Market declines are more devastating later in life. There won’t be enough paychecks coming in to fund your rebound.

You should have more than stocks and bonds. I recommend 3-5 non-correlated assets. That provides enough diversification without a lot of costs and complexity.

Where to Put Your Portfolio Money

Most doctors have retirement accounts. Things like IRAs and your 401(k). Those tax-favored accounts are great for bonds and real estate. Stock index funds are fine for taxable investment accounts.

“Rebalance” if things get way out of whack but continue to invest. So, if you were 50:50 stocks and bonds. After a crash that may become 45:55. If stocks continue their downward spiral it will be time to rebalance. Future contributions should go into the stocks until the ratio is back to 50:50.

Review your financial and investment plan. Your asset allocation and rebalancing plan should already be in there. Make no major changes now. Or if you feel you must, don’t do it without talking to your spouse and/or a professional money manager. The voices in our heads can lead us astray in times of crisis and panic.

Also, consider this time to convert to a ROTH IRA while taxes are low and stock prices are down.

Stock investing grows portfolios. Don't sell. Avoid panic.
Source: Robert Shiller (Multpl.com)

Stocks Grow Your Portfolio

Own equity for growth. The long-term trends are upward. It is hard to see some of those scary drops in stock prices.

Passive, low-cost investing is best. Our own behavior is our biggest enemy. Stay the course and keep your demons in check.

Reducing liabilities reduces expenses.
Income Statement and Balance Sheet

Help the Flow

This diagram is more complex than the bathtub analogy. Our jobs and income are important parts of our financial lives.

But we have some control over the other parts too.

Like assets, expenses, and liabilities. Cutting debt reduces expenses. Reducing expenses frees up more cash to invest. Investing allows us to build income-producing assets. Those assets allow less dependence on our jobs.

Protecting assets with insurance can reduce portfolio panic.
Insure against catastrophic losses

CYA- Cover Your Assets

These are the three insurance policies that most doctors should have.

Disability insurance protects your most asset: your Human Capital. A doctor’s lifetime earnings can be $5M – $10M. What if something prevents you from working?

A 20-30 year Term Life insurance policy will protect those dependent on you such as a spouse or children. It will protect them from the financial hardship of your loss of income to the household. Buy the insurance when you are young and healthy, if possible.

If you have children update your will. I’m often amazed to hear of physician parents out there with no will. That boggles my mind. Don’t let that be you.

Umbrella policies are an affordable way to cover liabilities not covered by your other policies.

Avoiding portfolio panic allows financial freedom.

Calm on the Inside

We need to work on our own health & wellbeing.

Limit COVID-19 and stock market bad news to scheduled times and sources.

Try not to obsess over daily/weekly fluctuations in stocks. It is Noise, not Signal.

Consider meditating. Headspace is free to those with an NPI number in 2020. I use it daily. It helps me reduce anxiety. It increases my gratitude and compassion.

Help Yourself & Others

Pray and/or visit online churches if you are so inclined.

I find giving to others time and money helps me feel more blessed. There are plenty of opportunities to help people in need now. I’m donating to food banks, sponsoring children, and helping first responders. That is what helps me and them. You need to make your own choices.

And remember the importance of physical fitness. A solid base of health, endurance, strength, and fitness helps us to be more resilient. Doctors are not robots. We need to care for ourselves to continue helping others.

Take action to avoid portfolio panic.

Take Action Now but Avoid Portfolio Panic

So, what action steps will you put in place within the next two weeks? A few possibilities.

  • Polish and improve your market value.
  • Cut optional costs.
  • Build your “dry powder” either to live on or redeploy in investments.

Take action, but avoid portfolio panic.

  • Avoid PANIC.
  • Optimize taxes.
  • Reduce liability payments.
  • Insure against catastrophic losses.

Portfolio panic adds to physician burnout.

The Sun Will Rise

We will weather this storm and emerge out the other side. Indeed we will survive and thrive again.

Let’s see this as an opportunity to get our money straight and build a strong future of Financial Freedom.

Avoiding portfolio panic allows financial freedom.

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10 Comments

  1. planedoc said:

    well said, sir.

    I’ve faced a couple of financial crises before. Late 90s, then the 2008 one.

    Six months ago I had some “second thoughts” about my cash reserves, and not enough in equities. I stayed with my 60% stock/ 25% bond/15% cash allotment.

    Three years ago I decided that pulling money out of the market and paying off the mortgage was a good idea…then was a bit sick at watching the market continue to go up…..

    Now….I am glad I did all the above. Yes, I’ve lost a fair amount in my equities…but I have several years of living expenses in cash…no mortgage, and seeing retirement looming ahead I feel better prepared to face it.

    The old stodgy financial advice works.

    April 15, 2020
    Reply
    • Planedoc,
      Having a paid-for home, diversified assets, and an emergency fund with cash is a perfect way to ride out this storm.
      That’s my situation too. Stay the course!

      April 15, 2020
      Reply
  2. WD: Your article couldn’t have come at a better time! Both physician and dentist burnout is real and gets worse yearly as debt rises.

    This pandemic isn’t going to help either. I’m glad you mentioned exercise as most people are so focused on their job losses and lack of money that they don’t pay attention to their health during stressful times.

    It’s amazing the wonders of what going on a walk with your family can do to your mind and body. Stay safe!

    April 15, 2020
    Reply
    • Thanks for the comment, Debt Free Dr.

      I agree. This experience hasn’t been all bad for me and my family.
      We are taking family walks and bike rides. We eat our meals together. We have a sense of gratitude and solidarity that we lacked when our lives were too busy.

      April 15, 2020
      Reply
  3. IM-PCP said:

    I am lucky enough to receive my full salary, for now. But I am very glad to have had a number of financial moves squared away before the pandemic (mortgage paid off, 6-month emergency fund in place). Now I can support the local food bank and worry about bigger things, like the safest way to get groceries, and how to keep my family safe when I start working on the wards. Thanks for the tip about Headspace, I may look into that today.
    IM-PCP recently posted…Wednesday WoolgatheringMy Profile

    April 15, 2020
    Reply
    • IM-PCP,
      We are all continuing our salaries too -for now. I’m not sure what will happen a month from now though. I have heard a lot about furloughs, downsizing, and pay cuts (10%, 15%, or 20%) for doctors in many areas across the country.
      A paid-for house and an emergency fund go along way in maintaining financial peace. Congratulations on having that in place.
      I love Headspace. Here is the link with free access for healthcare workers.

      April 15, 2020
      Reply
  4. Good summary. Once again a Fawcett’s Favorite. With no debt and a big emergency fund and plenty of hobbies, the pandemic becomes some needed time off for me instead of an ordeal. to survive. Where you place yourself before the pandemic makes a lot of difference in how you will weather the pandemic. It’s good to already have storm windows installed on the house when the storm comes.
    Dr. Cory S. Fawcett
    Financial Success MD

    April 20, 2020
    Reply
    • Thanks for stopping by.
      I’m so glad you liked it. Thanks for spreading the word with Fawcett’s Favorites.
      I agree completely. I hope to continue my part-time work as a physician. But I also know we would be fine if not.
      I have thought of taking a sabbatical in the past. That’s kind of what happened. It isn’t all bad to stop the hyperactivity and have time to rest and think about what is important in life.
      I like the storm window analogy.
      Whatever problems we have with relationships, financial insecurity, job stress, housing problems, etc can all get magnified in a crisis like this.
      The best advice is from Jack Bogle: Stay the Course!

      April 20, 2020
      Reply
  5. Crispy Doc said:

    Hey WD,

    I’m glad your lectures are bringing a bit of calm to your colleagues. They could certainly use them.

    Pandemic Portfolio Panic is real, and forms that test of whether we will undermine our futures due to financial illiteracy.

    Thanks for setting an example the rest of us can follow,

    CD

    May 2, 2020
    Reply
    • Thanks, Crispy Doc

      Time will tell how wise my advice really is. My portfolio has taken a hit.
      My pay will likely be reduced soon. My rental property vacancy rates are creeping up.
      I’m not sure if inflation, deflation, or neither is a real threat right now.
      30M applications for unemployment in 6 weeks amount to nearly 20% of the labor force. Yikes. It is tough to be optimistic and calm.
      But I’m doing my best to stay that way. And -I hope- influence others to stay calm and optimistic as well.
      All I can do is go back to simple principles. Stay Frugal. Minimize Debt. Don’t Panic Sell. Support Multiple Income Streams.

      I tell myself and others: Take it day by day and remember what’s important in life.

      May 3, 2020
      Reply

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