What the virus means for the economy (and what to do about it)

As the corona virus (now termed COVID-19) becomes a global issue, it's started to impact tourism, trade, business and now the financial markets.

So what does it mean for the economy, and where is it headed? But probably the most important question - what can YOU do about it when it comes to your finances and building wealth?

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Simone

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If you want to keep on earn more and make more money you're in the right place. I've spent over 10 years learning from the most brilliant minds in money, wealth, and investing to take myself from 20 K in debt to a seven figure investment portfolio. Join in. As I share the secrets towards more growth, money investing and ultimately freedom. My name is Simone Masa Huggins, and welcome to ms. Wealthy's kissed my money podcast.

Well, now's about a pretty good time to start talking about COVID-19 or better known as the current virus, because it's seems to be ramping up. And it's definitely on the top of people's minds right now. Now this is going global. It doesn't exist in China anymore. And at the time of this recording, it's really hit Europe in a really big way. And Italy has kind of been at the source of that, right? And I wanted to start to kind of divulge on some how this affects the economy and your wealth, particularly because we have been talking about this inside the VIP group, inside investing babes, um, that are currently going through investing bootcamp with me. And, you know, it's a really like just the stuff we're talking about, a really, really good topics. And I want to, uh, I guess share some of that with you so that you can make an informed decision and hopefully not freak out as much.

I know that some people really are, and this is where it gets like, this is pretty much the apitomy of what happens, um, when he, uh, the stock market or any market really, uh, takes a bit of a dive or a correction or a crash, whatever you want to call it. Um, and it's all based on fear. It's all based on mentality, right? That's the, like the biggest thing that actually drives the economy is consumer sentiment. Obviously there are other things and yes, companies felt and, you know, they can't just survive based on belief. Uh, but it is a really, really big thing. Now are businesses profits being impacted? Yes, of course. And does that affect a company's performance and therefore in turn affect the stock market? Yes. A hundred percent. Absolutely. But I also want to give you some interesting points to think about around this so that you can make an informed decision and so that you can actually be empowered around this and how it's gonna work for you and your wealth and, um, you know, literally you and investing.

Right. So one of the biggest things is we're at the early stages right now. Yeah. Like it's only kind of been what a month or so, and it's kind of seems to be like spreading and ramping up. And because there's just more talk about it, this kind of like fear mentality and this pen, you know, this idea of it just being a pandemic right. Is completely and utterly consuming people's minds. And there are definitely sectors that are going into freak out mode. Now also what's happening is new cycles. What do they do? I've spoken about this before. They love it because it's that like attention grabbing, they get more eyeballs on their screens. And so it just continues to fuel their business, which is based on advertising. Right. Okay. So I want to give you some things to think about and understand. So yes, started in China and why that matters is because China is basically seen as the global factory, like in terms of literally getting things made, they are the biggest export or for most countries around the world, because labor is cheap and they've basically like maximized their ability to do things at scale also because their population is so large.

So that affects the globe a hundred percent. There's, there's no denying that, uh, and businesses rely on that as well. But also because the Chinese economy has taken a hit, uh, China isn't at importing as much either. So there are really strong agreements in terms of trade between the U S and China and Australia and China, and that has been impacted. So it means that both of, or all countries really that important export out of China are affected in some way, you know, some things have come to a grinding halt, uh, some things that have been delayed. Uh, I know I certainly ordered some stuff from China, like a few weeks ago and it just, I got half of it and the rest just isn't coming, you know, so it's a hundred percent effected. He is what is interesting. So the us, in terms of kind of the global economy, we tend to look at the U S as a leader because it makes up about a third of the global economy in terms of market size.

So, you know, when you think about the big companies that are out there, like Google and Facebook and Amazon and Johnson and Johnson, and like the big international companies, a lot of those, a large majority of those are based on the us stock exchange, they're listed on the U S stock exchange. And so the U S makes up about a third of the global economy in terms of market size. Now why that Matt is, is that right now us is actually not a country that is massively or barely at all affected by the virus. That doesn't mean they won't be, uh, it's just something to note. And so when we looked at the big global data being the U S they're currently there, I think they have known no deaths recorded, um, or maybe one, uh, compared to the current. I think it's close to 3000 deaths from coronavirus.

Now, something to note here is when we look back at comparisons compared to like other viruses, and what's happened to the economy at that time, we think back to the last one, which was the swine flu. I don't know if you guys remember that. Uh, but that happened, uh, about just over 10 years ago now. And it, the biggest outbreak of when it happened actually happened in 2009, and they had a total of, I think, almost 13,000 deaths from it. Now what's interesting here is that 2009 was the year where we had the biggest rebound in terms of, um, the biggest gain in the market and the economy rebounding, because we had the crash in 2008. So the virus didn't actually affect the stock market negatively at that point, because we were rebounding, right. We had already have had the correction. Um, and so we'd already quote unquote going into recession.

Uh, and so we were rebounding. So it didn't affect it now, potent to note here that in terms of like, just, um, what, the words that economists and the financial world uses is it's around about 10%. They will therefore say the market has had a correction, right? So like a correction in gains or value it at around about the 20% Mark that's when they call it a crash or a recession. So if it's not hitting those percentages, then it tends to not be called that obviously all the fears still happens and all that sort of stuff, but we are currently not yet in a correction. So it's around about 7% that went down from the last week or so, uh, in terms of the, the, the last market high. So we're currently the, you can't even say yet that the economy is in a correction yet.

So a 10% drop hasn't happened yet. Will it maybe will it, you know, get to 10% and then rebound, and then we're done, maybe will it continue to go down to 20%? Maybe the thing to note here is that no one knows. And I wish I could say to you that I have the crystal ball, but unfortunately I don't. And what I can guarantee is that no one does, I recently was listening to an amazing podcast by this kind of like leading economist. And he said something really interesting and it's so, so, so true. And that is that the market never repeats itself, or the economy never repeats itself, but it does rhyme, meaning we don't have the same thing happened every single time when we have a correction or a crash, but it does rhyme in terms of we see regular patterns. So in the past, we, we have seen corrections in the market, uh, every seven or so years, right?

So in 2000 or 2001, we had the.com bust and that was pretty secular. So it was primarily just the.com or tech industry that took a dive. Then about seven years later, we had what the GFC, which was about 2007, 2008, uh, which was led by the housing market. And so we've had other things at multiple different times, but it's always had a particular reason. And so every time, um, you know, that the market will say, well, this is just never seen before in history. And that's kind of true to extent because it never repeats itself, but it does rhyme. So if we look at the last 10 or 11 years, we haven't actually had a crash or a major correction. There were a couple of not great years, like in 2015, in some countries, it wasn't a great year. It was about a 10% loss, which it really isn't that much.

And then the following year was a 20% gain. Right. So if you average them out, it's like, cool. It doesn't really matter because, um, I've spoken before about, you know, if you average out the return of the stock market over the period of time, since it began, it's about a 10% on average return year on year, it doesn't mean you get 10% every year. It means that on average, if you average it out, excuse me, uh, it will end up at about 10%. So some of you are, you'll have 20% some year you'll have, you know, minus five, some year you'll have 30%, which is what happened last year. We had a Stella year last year in 2019. So where was I going with that? I just want to highlight to you that we are overdue. Technically, you know what economists say, we are overdue for a correction, but then if you look at other years, maybe we've already had it because we had the correction in, you know, a couple of crappy years, like in 2015 to may.

Well, we have another full years before we even face something, you know, again, why we need to the market needs to recorrect. So are we drew for a correction? Maybe it depends on who you ask. And when economist some, you know, some economists is saying we won't have a correction for another four years, or, you know, some people are saying we've already had it and we've got another seven years. Like some people are saying, well, it's going to crash next year, but they've been saying that for three is strike. I'm going to say it again at the risk of sounding like a broken record, no one actually knows. And these things like viruses or the dotcom or the GFC because of the housing market all come out seemingly from nowhere. And like I said, they always say, wow, this is a once in lifetime. You know, this just never happens.

And it never happened that doesn't repeat itself, but it does rhyme. So if we are in a correction and a correction does happen, I need you guys to know this is a good thing. It means that you have the opportunity to get in, in the market when it's Fullen. And what am I said before? It means the stock market is on sale. And that is the biggest opportunity to make the biggest amount of money when the stock market is down. Because when it turns around and rebounds, you see 20%, 30%, 40%, like year on year returns, uh, because it always return. It always rebounds. It always goes back up. It's just how the economy is built. Right? And so I hope that that is a mindset shift for you. If you understand that it's okay, this is part of the cycle of the economy and what we are talking about inside the VIP group with the other babes inside there is that this is actually a really good lesson and really good learning.

Cause I, you know, I talk about the two major things that you need to think about when you start investing and that is your goals and your risk tolerance. And we go through like a really specific, um, kind of formula for how to work out your risk tolerance. But this is a really good when this happens. And this happens in reality is a really good stress test on your actual risk tolerance, because it can be all well and good to so it to say, yeah, I have a really high risk tolerance, but when it comes to the economy, you know, dropping 20%, I'm freaking out is a total mismatch, right. And that's okay. There's nothing wrong with having a more conservative risk, you know, risk profile. Um, that's absolutely fine. And perfect. What's important is to invest based on your risk profile so that you'd know that your investments suit you and it's such an individual thing.

And the opportunity here is to invest in things therefore that are less risky, but still produce a return. And there are many, many different ways that you can do this. One is with bonds. And then the second is, you know, I'll just talk about the two major ones, first one bonds. And the second is like a high yield or interest kind of paying income, paying, investing. And that's a different strategy to a growth or wealth accumulation strategy, which is focused on, uh, the value of the appreciation of, uh, you know, a stock or even property, for example, going up in value. So it's a, it's just a different method of investing. And when you invest that way, it doesn't actually matter so much what the value is because you're focused on the income or the interest being paid to you. It's not about the value, the underlying value going up.

So I know I've just given you a whole lot, and it's so hard for me to explain it on a podcast when it's not, um, you know, when we're not doing Q and a, and I of show you visuals, which is obviously why I have investing boot camp as a program to take you through. But, uh, yeah, I just, I hope that that's given you a little bit of insight into understanding that you can still invest in a way that works for you and that when you're fully equipped and when you have the knowledge and, uh, the tools and the power to invest, that that means that you can actually maximize and capitalize on this opportunity when, and if the economy does drop, um, so that you can get in, right? Because what happens when it rebounds and it recorrect and it jumps up by 20 or 30 or 40% and went back at the same level, right after it's correction, then we've missed that.

Like it's gone, it's happened. And that doesn't happen again for another seven to 10 years. So having the power to step in and the knowledge and tools to step in and invest when you want to, and capitalism opportunity is, is like, that's where the power lies. Right? The other thing I wanted to talk about is the impact of interest rates. So, um, and what I mean by that is the interest rates of the economy that the federal reserve or the reserve bank set. Now, the goal for the federal reserve is to try and attempt to stabilize the economy. Uh, that's primarily their role. And so if the economy is in massive growth phase and sometimes they'll, you know, try and slow the growth, so it doesn't go so crazy and they'll increase interest rates. So it means that lending is more expensive and buying houses and more expensive because the cost of loans is higher.

Now, obviously currently our interest rates are super low and this is pretty much global. And the federal reserve has what have they been doing recently over the last, at least year or two, they've been continuing to decrease to cut the interest rates, which means that borrowing is stupid cheap, which is why you can get home loans, but in the twos or worst 3%, which is absolutely crazy. But it's also why you are getting pretty much nothing in a savings account, right. Um, and with the rate of inflation, meaning how much cost of goods go up over time? Um, the rate of savings accounts is actually less than that. So the money in your savings account is actually going backwards. So it means that what will the federal reserve do again, I don't want it for the federal reserve, not the reserve bank. I do not know my assumption is that they will either keep interest rates the same or drop them again because their role is to stabilize the economy.

They are not going to walk into every quarter when they have that big meeting to decide what they're doing. Uh, and then go, you know what, the economy's kind of pretty volatile. Everyone's a little bit freaked out right now. We're going to increase interest rates. No, that's not going to happen because they want to stay, realize that they want to come, you know, people's emotions and nerves and that tension. Um, and so they'll either keep them the same or drop them again. Now that means that lending will continue to be cheap, but it also means that savings account interest is practically making them money go backwards. Okay. So what can you actually do about this first off? And then probably the biggest thing is to remember, to keep your emotions in check around this. Now, if you actually look at the data around COVID-19 or coronavirus, um, the biggest area or the biggest kind of sector of people that are being affected are those with preexisting conditions.

So like cardiovascular conditions and, um, heart disease and diabetes, uh, it's also highest flee, highest effected in the elderly. Um, and so in the ages of, you know, 30 to 50, I think, well, if you have like 20 to 50, it's like 0.2% of people compared to around 15, at least in the kind of 70 range, no one under, I think nine has died. So it, you know, they're still finding out about what this virus is actually doing and who it's affecting. Right. Uh, and it's mostly affected, uh, in men, less so in women. Now that doesn't mean it's not going to change. It doesn't mean that it won't morph and whatever, but when we look at, you know, other viruses and what that looks, and also just the general flu, like, you know, how people get the flu, people die from the flu too, like just the standard everyday flow.

And so a part of this is it is also massively people freaking out because it's kind of this new news. And it's that herd mentality of kind of just going nuts because it's this new thing, whether this is the thing that Ray corrects our economy, I don't know, but you do have the power to change your investment strategy. Now I want to touch briefly on this, why this is different to timing the market. And I've mentioned this before, and I've spoken about trying to time the market and how this is the number one thing of why people lose money, never get ahead and never actually, uh, able to build a 12 is because they try and time the market. And I'll explain it again, if you, if you're unsure what that means, it basically means trying to guess when the economy is going to go up or down and therefore investing based on that.

And here's what I do know. No one knows even the best in the world, the fund managers that, uh, do this full time all day, every day, uh, don't even get it right, right. 96% don't get it. Right. And so there is absolutely no way that an average investor, and I'm just calling, I'm not calling you average. I'm just saying you an everyday investor, uh, means that there was no way that we can predict what's going to happen. And so when people try and go, I'm just gonna wait, I'm just gonna wait and I'm gonna buy it the bottom. Uh, that's literally the worst thing you can possibly do because no one knows when the bottom is. And what happens is people wait and wait and wait. And then by the time that the market has kind of already rebounded, it's already up, or, you know, rebounded at least 10 or 20% before kind of the new cycle will start confirming that it's rebounded because, uh, it would just kind of, there's always a delay, right?

And so by the time you actually get in the majority of that rebound has already happened. And so most of the time you were already getting in almost at the top and the people thinking that they're different and that they can work it out and they can predict it's probably the scariest thing when it comes to losing money. So please don't do that. Please don't do and fall into the trap of the number. One thing of why people lose money in the market. The difference between switching your investment strategy is that you are not actually, uh, trying to time the market. You're just shifting your investment strategy to be based on your risk tolerance. And that is absolutely okay. So if you are a currently an investor, or if you're starting to invest, now you can review. I can go, okay, actually, this doesn't suit my actual risk tolerance because in reality, when I'm looking at it, I, I feel like I'm actually more conservative than this because I am freaking out more than I thought I would.

Right? And so you can switch to a more conservative investment strategy. It doesn't change. Like you're not timing the market. You're just adapting yourself to your investment strategy. And it means that you are still invested. So you're not actually taking money out in, you've still invested. You're just slightly altering your actual strategy. And that might be, you know, a more conservative one. It might be more to boards, bonds that might meet more towards, uh, uh, income or interest strategy rather than longterm growth. Now, you shouldn't be doing this like every month. That's not the point. This is just a good opportunity to learn what it is that suits you and know that you can still make money, even when some sectors of the economy are going down. Okay. So if you've watched my free master class that I have done before and ran before, and the next one is gonna come up in, in, where are we now in about three weeks, I'm going to be running another one.

And that actually shows you that there are other assets that go up when the stock market goes down. So you don't need to stress about only being exposed to that one sector. Okay. I hope this has given you some things to think about and some perspective, and hopefully calm your nerves around this a little bit. And hopefully given you some power around what you can actually do, even if the economy does go into correction or even if the economy does go into a crash and what you can do to still make money in it. Alright, babe, I would love to hear your thoughts on this episode. And as always, if it's helped you, please do share it and drop a review on iTunes so you can share the love. It would mean so much to me. Otherwise, I'll see you next week, baby.