If you didn’t have a chance to register for Paradigm Life CEO Patrick Donohoe’s live Q&A webinar on Friday, April 3, or if you’re looking for a refresher course on the topics discussed, here is a summary of the questions asked and Patrick’s answers.
Financial Certainty in Uncertain Times Q&A
Q. What’s going to happen to the economy after the COVID-19 crisis?
The economy goes in cycles, much like the seasons. Right now we’re in “winter” (regardless of the temperature outside). In this environment, old ideas are put to bed, dysfunctional economics tend to die out, and weak processes are exposed. This is also known as creative destruction.
The concept of creative destruction comes from Austrian economist Joseph Schumpeter. It states that it’s a necessity for longly held ways of doing things to be destroyed in order for the birth of even better and more innovative solutions.
After the COVID-19 crisis, the economy will move into “spring”. We are lucky to live in an environment where many of humanity’s greatest accomplishments shine, and the future is coming faster than you might think. While it’s easy to get hung up on the dire things that could happen, we often forget to look for all the innovations that are happening right under our noses.
Author Peter Diamandis writes extensively on this topic in his book Abundance. You can learn more about his work here.
People are built to solve problems. I predict a huge economic shift in generational wealth. The younger generations will accelerate innovation, increase efficiency, introduce new technology, and find new and better ways to solve problems. These improvements will also likely be better for the environment. I feel optimistic for the future.
Q. What will happen to the valuation of the dollar, interest, and inflation?
There is a lot of misinformation circulating about inflation and the value of the dollar. Before you buy into the hype, do your research. Who is circulating this information? Do they stand to make a profit? I recommend finding additional perspective. One source I trust is Ray Dalio, head of the hedge fund company Bridgewater Capital. I recommend this short read from Ray on LinkedIn.
People value currency as if it has value. It doesn’t. Currency measures value. Value comes from assets and from yourself. One of the great things about you is that you’re your greatest asset and you can increase your value. Focus on things you can control.
The U.S has always held a strong monetary position. Regardless of what happens to the dollar, because the COVID-19 pandemic affects the global economy, similar economic scenarios are playing out all across the world. I don’t believe it will affect our position relative to other countries.
Q. How will the CARES Act be funded? What does it mean for my tax dollars?
The CARES Act is the first of what will likely be many economic stimulus bills to go out over the next several weeks and months. My good friend and CPA, Tom Wheelwright, speaks extensively on the topic in this YouTube video I highly recommend you watch it now, as it contains valuable time-sensitive information.
Taxes will likely increase as a result of economic stimulus bills, but just because taxes go up doesn’t mean you have to pay them! There are plenty of tax advantages written into the tax code that you won’t find on software like TurboTax. Speak with a professional and learn ways to protect your income from higher taxation. A whole life insurance policy offers six tax advantages, and is just one of the ways you can protect yourself.
Q. How can I continue to bring in business during times such as these?
I would change this question to say, “How can I create value in multiple ways?” Look at what you can control, and adopt a mindset of innovation. Here are some examples I’ve seen recently from businesses I interact with:
- Offer gift cards; look for ways to get customers to buy now but use the service or product later.
- Offer online content; staying in the forefront of your customers’ minds keeps you relevant, so continue to post and share points of interest.
- Teach your customers. You may not be able to offer them a physical product right now, but chances are they’re hurting without it just as much as you’re hurting without their business. Use your expertise to share with them what you know.
- Provide value. Look at what your customers need and find ways to solve for their problems using your resources. One great example I’ve seen this week is local distilleries using their resources to offer hand sanitizer.
For more ideas, I recommend The Work From Home Show. Here’s the link to the podcast.
Q. How can I make money from home?
This overlaps a bit with the previous question; the ways you can make money from home depend on you. We have incredible technology today that makes all sorts of remote work possible. The first step is defining your assets—what are your unique abilities and talents?
There is a whole chapter dedicated to this topic in my book Heads I Win, Tails You Lose. You can find more information on the book here.
I also recommend these reads about investing in yourself:
Q. How can I recoup my retirement income that I’ve lost in the market downturn?
I strongly believe retirement shouldn’t be your end goal. My research has shown typical retirement isn’t what people really want anyway. When people talk about retirement, what they really are looking for is financial independence.
The theme at Paradigm Life for April is retirement; to that point we recently published a fantastic issue of The Donohoe Bulletin that addresses the topic of retirement in great detail. Regardless of your finances or how close you are to retiring, I highly suggest you read this article.
Q. Where can I safely invest?
Honestly, don’t invest right now. As I mentioned, we’re currently in the “winter” of the economy. Now is the time to be efficient and frugal with your money. Use this time as an opportunity to research investment strategy and to increase your capital over the next 6-12 months. This way, when the time comes, you’ll be ready to act.
There are two ways to prepare for future investments:
- Create and expand upon your network
- Focus on personal development and education
For more help preparing for investments that will put you ahead in the months and years to come, check out Issue 5 of The Donohoe Bulletin.
Q. What do I do about job security? How can I make financial decisions if I’m not even sure I’ll have a paycheck?
When you’re concerned about job security, you’re essentially putting your financial future in someone else’s hands. It’s a scary place to be. You don’t have control in that situation. The best thing you can do right now is find ways to take that control back. Don’t pursue job security, pursue financial freedom by focusing on what you can control.
Recognize your value and look for ways to increase it. Educate yourself. Find ways to work from home. Refer back to the “How can I make money from home” and “How can I continue to bring in business” questions above for resources.
Q. How will we know when the market shifts out of a bear market back into a bull market?
While this is impossible to predict, there are signs that historically signify a shift in the market. Look at unemployment rates and consider consumer confidence. When people start going back to work and spending, it’s a good sign. Keep an eye on technology and manufacturing industries, as I believe these will see the biggest economic change coming out of the bear market.
Q. Is it too late to change my financial strategy?
It entirely depends on your situation! Our virtual consultations are ALWAYS free; if you have questions about your financial strategy, please don’t hesitate to reach out to a Wealth Strategist and look at your options. We can assess where you’re at and outline a strategy for you moving forward.
Topic: Real Estate
Q. As a property owner, what are my responsibilities to renters over the next few months?
I believe that if you provide your renters with resources (like the CARES Act information, for example) and work with them to find solutions, you’ll not only increase your chances of receiving rent payments, you’ll also have better tennents in the long run. Be innovative and work with each other so you both end up on top.
Q. How does the economy affect my property value?
Current property values will go down and interest rates will stay low. Use this opportunity to do your real estate homework. The world is about to go on sale, and educated investors will reap the benefits.
Q. Are returns on my whole life insurance policy guaranteed?
Cash value in whole life insurance policies grows in two ways: underlying guaranteed growth of cash and dividends. Mutual life insurance companies have paid dividends for hundreds of years. The exact amount depends on the insurance company. While some dividend rates have dropped in light of COVID-19’s effect on the market, you’ll likely see rebounds over the coming months.
Mutual insurance companies are experts at assessing and pricing risk. They are structured to thrive during crises like these and have done so time and time again (Spanish Flu, WWI, WWII, 9/11, etc.). By funding a policy, you’re in a position to reap reliable financial benefits that stock market investors will never enjoy.
Q. Are life insurance companies adding additional qualifiers in response to COVID-19?
It depends on the company and may be too early to know for sure. One thing we’ve seen change over the past few weeks is insurance companies changing the way they screen and do medical exams. We’re seeing increased efficiency and automation. Our client services team is ahead of the game in terms of information on various carriers and how they’re handling the coronavirus. .
Q. What’s a better product right now, whole life insurance or indexed universal life?
Before the coronavirus, a lot of people wanted insurance products that allowed them to play in the market. In spite of all that’s happened over the past month, maybe you still enjoy risk. But if you want certainty, a whole life policy is the way to go. Indexed universal life policies are tied to uncertainty and increased fees; they don’t function optimally from an investment standpoint, nor do they fit the need of creating a solid financial foundation.
If you want asset protection and an iron-clad financial foundation that puts you in control, a whole life insurance policy is the better product.