Global COVID-19 Pandemic and Recession!
|Sample of the ride we're on the past month|
Wifey and I are in the group of lucky ones where we both still have jobs and are both able to work from home.
However, the COVID-19 pandemic has had an effect on our retirement savings. At it's worst, our investment portfolio was down over $70,000. It's not as bad now. However, it's been a roller coaster of a ride.
While things are going well, as I mentioned previously, wifey works for a high end fashion company. Chances are people won't be spending money on high fashion in the coming months. As a result, wifey's job, whether it will continue or not, is a coin flip.
As a result, it was important to go over our expenses and to look over the emergency fund.
After figuring out the fixed expenses each month, I determined that we need $2,800 in order to pay this portion. This covers things like the mortgage, property taxes, condo fees, life insurance, internet and phones.
This amount doesn't include home and auto insurance as we pay that once a year and we paid that last November. We don't need to worry about that until later.
For the rest of our expense like food and necessities like personal care products and other stuff, I'll assume $700 a month for these.
I'm not counting the cost of gas or public transportation as we're currently both working from home. If either or both of us lose our jobs, this cost will still be zero. I'm not including the cost of traveling to job interviews, but I'm assuming no one will be hiring.
In total our expenses would be $3,500 a month.
In the event both of us lose our jobs, we would need an emergency fund of $21,000 to keep us afloat for 6 month before we'd need to take money out of our depressed investment portfolio.
The next question was if we had an emergency fund that large?
Previously, we held a TD e-series account that had close to $14,000. I considered this portion to be a good chunk of our emergency fund. Even factoring in a 30% market crash, this would still be $9,800. Good for almost 3 months.
Unfortunately, I sold these funds last year when we needed a downpayment for our condo. As I wasn't planning on using TD again, the contribution room that came from selling these TFSA funds was used to put more money into our Questrade investment portfolio.
As luck would have it, March is when we file our taxes. As a result, shortly before Ontario was asked to self-isolate, we were in line for significant refunds totalling $4,700 for both wifey and myself. We also had some money saved for our yearly home and auto insurance premiums plus we were paid the same week. After figuring out money allocated to credit card bills and mortgage payments, we managed to save up $9,000. Factoring in $2,000 we have in cash at home in a safe, we already have more than 3 months of expenses ready.
Amazingly, at the same time this has been going on, Scotiabank sent out a notice that their chequing account now requires a $3,000 minimum balance in order to waive the monthly fees. As a result, I had allocated another $1,000 into that account. So there was another month if you factor in the extra $500 from before.
With all this going on, the Canadian dollar also tanked relative to the US dollar. Under 70 cents USD for each Canadian dollar. Bad if you want to convert Canadian to USD. However, going the other way, one USD is worth around $1.45 Canadian. Fortunately, I still have $4,700 US in a USD savings account. That's about $6,800 more. Or almost two more months. Even if the Canadian dollar recovers to 80 cents, unlikely at this point, that $4,700 US is still $5,800.
So in total, we have about $20,800 for an emergency. Not bad.
This is in the event both wifey and I lose our jobs.
If either one loses our jobs, we won't need to dip into our emergency fund. However, we won't have much room for savings each month either.
If everything stays the same, we will be able to invest the extra money into the stock market while prices are lower. That is a nice bonus.
Of course we don't know if this is the bottom. We also don't know how long this recession will last. Is this actually going to be a depression? I wish I knew.
Nonetheless, as long as we both have work I will be putting away a little extra into our investments. Since stocks are at levels from 2015/2016, I will also put our extra money into the mortgage.
However, with TFSAs maxed out and RRSP room a little uncertain because of unknown future raises and changes to RRSP contributions and matches, I'm going to invest in a taxable account for now. I'm going to make investing as easy as I can by purchasing two funds. VCN and VXC. The Vanguard all Canada and the Vanguard all world excluding Canada. For these two, I'll be purchasing in allocations of 15% and 55%. I feel Canada is still a little overweight but investing in Canada does give some tax relief. I also considered swap based ETFs from Horizon, but the government could potentially change the rules and regulations around swap based ETFs and trigger a potentially huge tax bill. If you noticed, my target allocations only add up to 70%. The remaining 30% will be used to purchase GICs. So far, I've been purchasing 3 month GICs at 2.45% from EQ Bank. Given the current climate, 2.45% is pretty much the best option out there and 3 month terms will allow me to reassess in case our situation changes.
As they say in all those briefings on COVID-19, the situation is always fluid and changing. I'm happy with my plan and situation now. However, that can change in an instant. If it does, I won't hesitate to go over everything again and adopt a new plan.