Managing Money in Uncertain Times With a Panic Protection Plan
The February jobs report was old news. The reason is that the Labor Department compiles employment data for the pay period that includes the 12th of the month, which as economist Paul Krugman notes means that “we’re probably getting a picture of the employment situation in the first half of February,” prior to the Trump Administration’s policy actions. That said, the February numbers came in as expected: 151,000 new positions added, the unemployment rate was 4.1 percent, and annual wages were up 4 percent, a full percentage point ahead of the 3 percent inflation rate (CPI as of January).
As Krugman notes, the February job loss of 10,000 federal government positions is likely just the tip of the iceberg. The DOGE hiring freeze, buyout offer, and mass layoffs of probationary workers (more than 200,000) will likely have a significant impact on subsequent reports. The hope is that hiring is strong enough in the private sector to absorb those (now) out of work government workers. But there is one more wrinkle in the near-term labor market: EY Senior Economist Lydia Boussour warns that “steep tariff increases and the surge in uncertainty and volatility could cause job growth to moderate even further.” Many companies that serve the government and could be impacted by tariffs have put hiring plans on ice, until more information emerges.
Hours after the jobs report was released, Federal Reserve Chair Jerome Powell said that “the U.S. economy continues to be in a good place,” but he also noted that “recent surveys of households and businesses point to heightened uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment.”
If there is one word that keeps popping up when it comes to the economy and to the financial world, it is uncertainty. Maybe the job market will be ok, but maybe it won’t; maybe the economy can withstand tariffs or maybe we will slow down and even slide into a recession; maybe U.S. manufacturing will get bigger (there are currently almost 13 million manufacturing jobs out of almost 159 million total jobs), or maybe it will remain at about 10-12 percent of the total U.S. economy, which is where it has been for 15 years; maybe A/I will eliminate all of our jobs, but maybe it won’t; and maybe the stock market will tumble into a bear market (a drop of more than 20 percent from recent highs), or maybe it won’t.
All of this uncertainty is hard to manage. When feeling overwhelmed by the news cycle, it’s great to talk to wise folks, who have seen a lot in their lives and careers. As luck would have it, I recently interviewed David Booth, the founder of Dimensional Fund Advisors and the namesake of the University of Chicago Booth School of Business, where Powell delivered his remarks after the jobs report.
The story of how Booth and an unlikely cast of academic upstarts at the University of Chicago in the 1960s transformed the investment landscape is chronicled in a new documentary Tune Out the Noise. These outsiders, some of whom went on to win Nobel Prizes, conducted groundbreaking research that challenged Wall Street’s status quo and ultimately reshaped the way the world views markets.
In our interview, Booth said something that stuck with me: “Investing has a lot of similarities to life in general. Investing is complex and uncertain, so’s life. You make the best decision based on your circumstances and the information you have.” With all of the uncertainties swirling around us, perhaps the best bet is to tune out the noise and concentrate on what we can control. To that end, I returned to my handy Panic Protection Plan that I update periodically. This step-by-step process can help calm your nerves and help you remain on track with your financial goals.
Step 1: Cover Your Big 3. I first adopted the BIG 3 after the Great Financial Crisis and it’s always been the first place to start. (1) Make sure that you have 6 to 12 months of living expenses in an emergency reserve fund. If you are short on the cash account, you may want to temporarily reduce your retirement plan contributions or deposits into your college savings fund while you build it up. (2) Pay down outstanding high interest consumer loans (3) Maximize retirement contributions, to the best of your ability.
Step 2: Determine Whether You Need Cash. Do you need to make a house down payment, purchase a car or pay a tuition bill within the next 12 months? If so, make sure that it is not invested in anything that can fluctuate (stocks, bonds, crypto) and instead, keep it in a safe savings, checking or money market.
Step 3: If You Face the Real Risk of Job Loss, Put Big Spending on Hold. This speaks for itself!
Step 4: Remind Yourself Why You Are Investing. Most of us are saving for a long-term goal, like retirement or college, which is likely years or decades in the future. Even if you were retiring within the next couple of years, your account needs to last another 20-30 years. That thought should help soothe some of your raw nerves. And here’s a bonus: as money comes out of your paycheck or savings and goes into your 401 (k), 403 (b), IRA or 529 plan, you’re purchasing shares at a hefty discount to the levels seen just a couple of months ago.
Step 5: Find Free Money. If you want to feel better about market losses, figure out how much you are paying in investment fees and determine if you can scoop up some free money. Can you replace an actively managed fund with a no-commission index mutual fund? How much are you paying a so-called advisor, who isn’t doing much to improve your bottom line? Could you replace them with an automatic investment platform at a fraction of the cost? Find that free money!
Step 6: Ask for Help. There are plenty of people who can manage their own financial lives, but others can really be their own worst enemies and make classic market timing mistakes, which leads them to buy high and sell low. If you are hiring a pro, make sure that you know what services you are paying for; how your advisor is compensated; and be sure that she adheres to the fiduciary standard, meaning he is required to act in your best interest. To find a fiduciary advisor, go to NAPFA.org, LetsMakeAPlan.org, or AICPA.org.