A Coronavirus Economy: The Truth From an American Living in Italy

As an American living in Italy, near Venice, I feel my perspective is unique enough to write my own article about the COVID-19 issue going on right now. As a finance guy, I feel it’s my duty to remind everyone of some important facts, before we all start freaking out as the New York Stock Exchange plummets.

So I’m interrupting my regular broadcast on children’s finance, to write a special piece. After all, this virus is an issue parents are having to deal with, and it does pertain directly to finances, so it kind of fits anyways.

Note: To clear up one thing upfront, COVID-19 is a disease. Coronavirus is, well, a virus. Coronaviruses have been identified in humans since the mid 1960s; COVID-19 is the newest strain of coronavirus.

Stuck inside? Here are 40 ways to make the most of your time!

What’s it Like in Italy Right Now?

Chaotic. “Out there”… from what I hear.

We just returned home to Italy in February, and due to the cities we traveled through (the Lombardy and Veneto regions), we were placed in isolation quickly after returning home. So did we have the coronavirus? The short answer is, I have no clue. The long answer is, I honestly and legitimately… have no clue. Why? Because the US government ran out of test kits in Italy, and then to prevent further spread of the disease, the Italian government froze all mail… which is—you guessed it—where the incoming test kits were.

A few of our kids got sick, but they’ve since recovered, regardless of what they had.

Hydration, rest, and vitamins saved the day.

We’re due to come off isolation tomorrow—which may or may not happen—but even then, the entire country is on lockdown. What does that mean? It means we can only leave home to go to work, grocery stores, and medical facilities. What happens if we leave home for something else? We’ll get fined, which has been happening to people daily.

If you leave home with more people than necessary (i.e. your spouse and/or kids), you’ll also get fined. As far as the Italian government is concerned, it only takes one person to do the things you’re allowed to leave your house for. Moreover, if you leave home without a special piece of paper, signed by a government authority, you could be fined even for driving to one of the allowed places.

Oh, and the police are driving through cities with loudspeakers telling everyone to stay in their home, which honestly feels like something that happens in the first 15 minutes of a zombie movie.

In short, the Italian government is taking COVID-19 seriously. As they should, because it is a big deal, and here’s why…

Why COVID-19 is a Big Deal

First, I want to get this off the table: COVID-19 is more of a problem with a given country’s medical capability than a problem of mere fatality rate.

That being said, COVID-19 does seem to have roughly a 20x higher fatality rate than common influenza, ¹ but given the newness of this specific coronavirus strain, we’ve yet to see what the actual numbers are. So it’s difficult to compare, but if one thing makes no sense at all, it’s comparing the actual number of deaths, rather than the rate (please stop doing that — that’s not how statistics work). Additionally, COVID-19 appears to be much more contagious than the common flu, which means it’s more rapidly spread.

I know it seems a lot worse than the flu right now, but I honestly don’t think it’s a lot worse, it’s just new. Of course, this paragraph is merely my opinion, but I think once we get it figured out, it will be close to equal.

But the main reason COVID-19 is a big deal is because we, as in the world, don’t have enough medical facilities to see the numbers of people who are getting sick. This is why China impressively built two coronavirus hospitals in just over a week. ²

We must give the medical industry time to handle all of the patients, and the best way to do that is to slow the outbreak. The serious cases of COVID-19 require a long period of breathing support, in a controlled environment (i.e. a hospital); we need the hospital beds for those patients. Vox released a graph to show how the medical industry is affected, and why it’s important to take proper protective measures:

Isolating yourself in the coming weeks is the most important step you can take to not become part of the problem, because I highly doubt you want to be part of the problem. It’s bad for everyone.

Let’s look at a quick history lesson on why isolation matters:

When the influenza epidemic of 1918 infected a quarter of the U.S. population, killing hundreds of thousands nationally and millions across the globe, seemingly small choices made the difference between life and death.

As the disease was spreading, Wilmer Krusen, Philadelphia’s health commissioner, allowed a huge parade to take place on September 28; some 200,000 people marched. In the following days and weeks, the bodies piled up in the city’s morgues. By the end of the season, 12,000 residents had died.

In St. Louis, a public-health commissioner named Max Starkloff decided to shut the city down. Ignoring the objections of influential businessmen, he closed the city’s schools, bars, cinemas, and sporting events. Thanks to his bold and unpopular actions, the per capita fatality rate in St. Louis was half that of Philadelphia. (In total, roughly 1,700 people died from influenza in St Louis.)

In the coming days, thousands of people across the country will face the choice between becoming a Wilmer Krusen or a Max Starkloff.

The Atlantic

Preventative measures mean the world right now… possibly literally. I don’t want you to freak out, I just want you to be informed.

Before we get into the financial side of all this, I have three last points:

1. Wash your hands and stay away from people. That’s your best defense.
2. Masks are to protect others from you; they don’t work the other way around. ³
3. When you say this virus is “only deadly for elderly people, and those with pre-existing conditions,” remember that those people can hear you.

For up-to-date data on COVID-19 and the statistics, check out this graphic.

Now let’s talk about the economy…

Before we move on, don’t forget to subscribe for a weekly newsletter on helping your kids understand important financial concepts…

The Financial Impact of COVID-19

We’re officially in a bear market. If you don’t know what that means, a bear market is, “a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.” ⁴

Yesterday was the biggest one-day percentage drop since 1987. ⁵

Pretty much all stocks have tanked, with airline and cruise stocks leading the pack.

What does that mean? The stocks are on sale, let’s buy, buy buy! Right?

Hold on there, Warren Buffett Junior. You’re right… kind of. But there are some seriously important things to remember during times like this, because buying blindly could bankrupt you.

This “buy while the stocks are ‘on sale'” mentality has a name. It’s called timing the market. You know, that thing that, historically, nobody can consistently do well. Sometimes the worst thing that can happen is that you actually do time the market correctly and make a large profit, because that makes you think it was you (with no luck involved) who made it happen. I promise, it wasn’t just you.

Here are six things to remember right now. These six things may save your retirement:

1. Don’t start buying stocks if you know nothing about stocks
2. You never know how high or low a stock will go, and it can always go to $0
3. Focus on what you can control: consistent & diverse investing
4. Chasing returns is a losing strategy; stay the long-term course
5. Always buy stocks based on the company, not the stock price
6. Don’t forget your long-term plan due to short-term news

The only way you can “time the market” is through dollar-cost averaging: a method of investing a fixed amount in the same type of investment at regular intervals, regardless of price. It’s automatic “timing the market.” You buy more when stocks are low, and less when stocks are high, if you invest the same dollar amount at each interval.

Sure, it doesn’t sound sexy, but successful investing is rarely sexy.

What Should You Do With Your Money?

If you have a long-term investing strategy, keep doing that. Don’t let the recent panic sway the strategy you developed during calmer times in the market.

If you don’t have a long-term strategy, look to a passive approach. What does that mean? It means investing for retirement by using low-cost index funds. Diversify among higher and lower risk funds, and continue to diversify through other means, such as real estate and commodities, if you so choose.

This isn’t meant to be an article on exactly how you should invest your money. I’ve written articles on why your kids should start investing in their 20s and how to teach your kids to invest in the first place. Both of those articles will teach you and your kids more on specific investing strategies. This article is meant to be a warning of what not to do.

The worst thing you could do right now is start sinking your savings into a bunch of individual stocks, when you know nothing about the companies’ financials and management. Definitely don’t do that.

If you want to take advantage of this dip, simply up your contributions in your current investing plan. If you’re invested in the market, in any way, you’ll see the benefits. But stick with your current investing schedule to take advantage of dollar-cost averaging.

If you still plan to “take advantage of” this dip, do it with extra money. That’s what I do. I have some money set aside to play around in the stock market, but it’s not part of my savings or retirement plan. It’s just to play. I recognize the fact that a lot of luck is always going to be involved, since history proves practically nobody can pick winning stocks over the long-term.

To learn more finance terms (like dollar-cost averaging), and to teach them to your kids, check out our entire glossary of finance terms. Don’t forget our recommended reading list, and check out the rest of our blog to set your kids up for financial success during these difficult times.