We’re getting our first small glimpses of light at the end of the COVID-19 tunnel this week. Spread of the disease could be peaking. The markets are starting to look a bit more stable. And our political and health care leaders are in the very early stages of discussing how and when to reopen businesses.
Still, I know we’re all dealing with a lot of anxiety and uncertainty, both in our personal lives and when we step back to take in the big picture. On today’s show, we check in on the current state of the markets and the economy, while also answering three of the most common questions that Keen Wealth clients and friends have been asking us over the past couple weeks.
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1. What’s the difference between fiscal policy and monetary policy?
These are the two big mechanisms trying to stimulate and stabilize our economy. And although they are somewhat related and working towards the same ends, they operate independently.
Fiscal policy refers to tax policies and spending bills passed by the U.S. Congress and signed by President Trump, including the recent Coronavirus Aid, Relief, and Economic Security (CARES) Act. Increased unemployment benefits, tax rebate checks, student loan payment deferrals, and required minimum distribution reductions all fall under fiscal policy.
Actions taken by the Federal Reserve fall under monetary policy. In response to the COVID-19 pandemic, the Fed cut interest rates down to 0% and also expanded its lending programs.
So far, the federal government has committed over $2 trillion on its stimulus package and the Federal Reserve has committed up to $6 trillion.
2. Eight trillion dollars? Isn’t giving away so much money a bad thing?
It’s important to note that most of the stimulus programs aren’t “free” to recipients. They’re, essentially, loans backed by instruments like mortgages, U.S. treasuries, and corporate bonds that inject some much-needed liquidity into our financial systems. Once we get through the pandemic and our economy regains its upward trajectory, those loans will be repaid, probably at a profit to taxpayers.
3. Should I sell the stocks I own until the pandemic passes and the markets settle down?
You wouldn’t be human if this thought hadn’t crossed your mind in the last month or so. But you have to remember that volatility – even the kind we’re seeing right now during this pandemic – is a short-term price that investors pay from time to time. Two or three months from now, no one is going to ring an “all clear” bell for buying stocks. I think the current and historical data we discuss in this episode will give you some perspective on how a solid financial plan is set up to weather these hardships while keeping you on track to achieve your long-term goals.
If you have any other questions about the current market situation or your portfolio, please don’t hesitate to get in touch.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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