This Too Shall Pass
British Prime Minister Harold Macmillian in the 1950s
Navigating the Corona virus crisis
British prime minister, Harold Macmillan, was once asked what the most difficult thing about his job was. 'Events, dear boy, events’ is what he is reported to have said.
Whether or not Macmillan said those words, if you are a person, a business or a country, events certainly can throw curve balls, as the current Corona virus situation is proving.
Plan for the worse
Based on all that I’ve read about the subject I think the Corona virus situation is highly likely to get a lot worse before it gets better.
Respected engineer Liz Specht @lizspecht thinks the virus has the potential to overwhelm the US healthcare system (which is highly inefficient and fragmented) by mid-summer this year, as set out in a series of tweets, in which she does the maths.
Liz makes the point that compounding means the number of infections will explode over the next few months. As a result, it’s almost inevitable that day to day life as we know it, at least for the next several months, will be dramatically affected by the measures required to slow down and manage the point of peak infections.
While any additional deaths are to be regretted, the effect on day to day economic activities is likely to be significant, painful and traumatic for most people. Large scale events will be cancelled. International travel will slow to a trickle. Overseas holidays and business trips will grind to a halt. Remote working will become the norm. Many workers will have to become carers. The list goes on.
The silver lining
Once infections peak (which most experts expect to be anytime from mid to late summer) things will slowly but surely start to improve. It might take up to 24 months for economies to normalise but eventually they will.
Without wishing to underplay the significance of the regrettable loss of life that will clearly arise from the outbreak of this new virus, I think it’s highly likely that some good will come from the current crisis. Here are a few that come to mind
Healthcare systems will be tested to the limit, but necessity will spur innovative new ways of working that might not have arisen in the absence of the virus.
Some countries will review their health care system and decide that they need a more efficient, fair and effective approach. For example, the US spends more than any other nation on healthcare but has highly unequal provision and outcomes.
Healthcare spending is likely to be much higher in the future in many countries that have, like the UK, been underspending compared to demand.
Businesses will have to find more efficient ways of working that minimises travel and commuting, avoids physical meetings in offices and provides workers will flexibility to meet caring obligations.
Many businesses will review supply chains to avoid over reliance on one jurisdiction, such as China. Security of supply will become as important as cost of supply for many firms. This should make them more resilient to future supply shocks.
Many weak businesses with minimal cash reserves will fail and go out of business, leaving stronger businesses opportunities to take market share, hire additional skilled staff that wouldn’t normally be available, and acquire useful intellectual property at low cost.
Many governments are likely to provide people and businesses with significant cashflow support through the benefits and tax system, that will help maintain demand for when the crises starts to rescind.
New business models will be developed. New products and services will be created and rolled out. New skills will be learnt, and many people will become more adaptable as a result of having to think differently.
Carbon emissions will fall as a result of the massive contraction in business activity, giving the planet a small respite from a key cause of global warming.
Those who are saving for their long-term will be able to buy shares in world class companies at a significantly lower cost than at the start of 2020. When markets recover (and this could be as long as 5-10 years), those who kept investing (and invested) will benefit handsomely from their patience and faith.
Learn from this lesson
Those who learn from life lessons can survive and thrive. When it comes to your personal finances, the virus crises reinforces these key money lessons, all of which I’ve written about in previous blogs:
Maintain a enough cash reserve to help you ride out short term drops in income or unexpected expenses. See this blog.
Keep your fixed monthly expenses as low as possible so you have maximise flexibility to cope with a fall in income. See this blog.
Maintain enough income protection insurance to ensure you will continue to get paid if you are off work for more than three months, as explained in this blog.
And maintain enough life insurance to ensure that any dependants are protected in the unfortunate (and unlikely) event that you suffer an early demise. See this blog.
Maintain regular investing for your long term via a low cost globally diversified index fund. You’ll be getting more for your money and benefit when the world gets back on its feet economically.
Spend any time spent on reduced working hours, enforced isolation, or restricted travel time doing things that improve your human capital (earning capability), reduce your spending or increase ways to make money from other sources, and diversify your income streams.
Below is a useful chart from my friends at Timeline (in which I am a shareholder), which shows the path of world stock markets over the past 100 years, together with major world events.
Source: www.timelineapp.co Reproduced by kind permission
It’s natural to be anxious, worried and feel concerned about the Corona virus. We know that the coming months are likely to be challenging. But we also know that it too shall pass.