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COVID-19 & Your Finances: Managing Financial Emergencies & Investment Withdrawals

Global stock markets have experienced unprecedented volatility as a result of COVID-19 and that has a lot of investors asking about the impact this will have on both their short-term and long-term finances. 

While generally it’s best to minimize withdrawals in a downturn, there are many reasons that you might need cash, for example if you’re retired, paying for tuition, or if you’ve lost your job. 

In this article, we’ll answer your questions about what to do if you need to draw from the funds in your account now:

1. I’m worried about lost income and the current value of my investments. When should I update my financial plan? 

It’s a good idea to update your financial plan any time you experience a significant life event, such as a change to your income or financial situation.

Setting aside money for emergencies or having access to credit is a key element of a good financial plan. If you find yourself needing to dip into those emergency funds or credit as a result of the crisis, then you should prioritize restoring those savings or paying off that debt once this passes.

If your circumstances haven’t changed, then your plan and investments shouldn’t either. However, with the recent declines in the value of investment portfolios you may be a bit further away from your financial goals than you were at the start of the year. It’s a good idea to review your plan with a financial adviser who can help you understand how to stay on track to reach your goals.

2. How will this impact my retirement? Is there anything I can do about it?

If you’re retired, it’s important that your accounts are set up to help you meet your retirement goals and to consider the timeline that you are expected to draw down on your account(s). The government has reduced minimum withdrawals on Registered Retirement Income Funds (RRIFs) by 25% for 2020, which will help retirees limit how much of their retirement investments need to be sold at this time.

  • If possible, you may want to lower your regular withdrawals right now, particularly if you have other accounts or income sources you can use for day to day spending instead. 
  • Of course, your retirement is unique to your own situation. Please book a call with your adviser, and they’ll work with you to build the right plan.

3. I’ve lost my job and need extra cash for expenses. With interest rates so low, would it be better to use a personal loan or line of credit or take money out of my investments?

It depends. If the interest rate on your credit is significantly less than the decline you’ve experienced in your portfolio, then you may consider using the credit in the short term to give your investments time to recover.

Of course, you can’t know for sure when the trade off tips in favour of cashing out. The bigger the gap between your interest rate and your investment losses, the more likely using credit is the better option.

4. Should I delay withdrawals as long as possible to prevent selling when markets are down? 

There has never been more varied forecasts from economists about what’s going to happen in the next few months than there is right now. Nobody knows for sure what will happen in the very short term. 

Our advice is this: if you can defer expenses and withdrawals from your investments in order to provide time for recovery, then do so. If you absolutely have to use the money in the next year, then move the money you need into something safe, like a high interest savings account until you spend it.

5. I need the money in my account within the next 3-12 months. What should I do?

Please book a call with one of our Portfolio Managers. They’ll work to understand your situation and help you make an appropriate investment decision.

Still have questions?

See these other articles for frequently asked questions we’ve received in light of the COVID-19 crisis:

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