APRIL 20, 2020 GRAND RAPIDS BUSINESS JOURNAL 11
GUEST COLUMN Michael Toth
How a liquidity strategy can keep you steady during a volatile market
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good long-term investment strategy means staying the course when times get tough. With an up-and-down market, unexpected changes can cause stress and lead to poor decision-making. While it’s critical to focus on the long term when it comes to investments, a liquidity strategy — which is designed to provide short-term cash flow and act as a buffer against financial distress — is equally important during a volatile market. It doesn’t take much for a financial challenge to arise — maybe a failed business venture, unexpected medical bills or a drop in the stock market. But with a liquidity strategy in place, you can help mitigate this risk and maintain your lifestyle in the short term until you get back on your feet. How do you ensure you’re able to focus on liquidity during turbulent times? With a little bit of planning, you can create a lasting strategy that can help
meet your needs. Understand your expenses An essential first step is knowing how much you spend each month. You probably have a general estimate of your necessary bills: mortgage, food and utilities. But go beyond those and understand the amount of money you’d need each month to keep living comfortably over a period of months or even years. This number can serve as a base and allows you to take a critical eye to your expenses. Note what could get cut, if necessary, when you’re facing financial hardship. Start with an emergency fund Typically, emergency funds cover approximately three to six months of expenses. However, this doesn’t always take into account ever-changing, real-life factors. Take unemployment, for example. Fluctuations in the labor market and desired skill sets
have the potential to extend a job search. Thus, having four months of expenses might not cover your needs. In an ideal world, your emergency fund should offer you a margin of safety that will allow you to hold on to your current portfolio assets and give you the cushion you need to ride out volatility. Up to a year’s worth of expenses in an emergency fund can cover the needs of most people. After retirement, one way to provide a cushion during down times is to have a stable cash flow to pay your expenses. A liquidity strategy can help. It can include income from Social Security, pensions and annuities and, if those sources don’t fully cover your expenses, part of your portfolio as well. Consider holding enough assets in your liquidity strategy to help cover anywhere from two to five years’ worth of expenses, depending on what your needs are. In general, your liquidity strat-
egy should be sufficiently sized to provide the cash flow you need during a bear market so you won’t have to sell equities or significantly change your goals and objectives during a downturn. Investigate your borrowing ability While it’s not always recommended to turn to debt in difficult times, there are conditions when this might be unavoidable. So you need to know that you can borrow in case of emergency. Borrowing against a portfolio or relying on a home equity loan isn’t considered part of a liquidity strategy in general. However, accessing a line of credit can provide the cushion needed to make it through stretches of volatility when a short-term cash influx could prove useful. Avoid panicking Emotions can often take over during times of anxiety, and a volatile market is a stressful time. These
situations make it easy to panic and sell during bear markets, or worry that your current investments will become depleted, especially if you’re in retirement. Avoiding impulse decisions Sticking with your long-term investment strategy is imperative. It’s often during bear markets when potential investment opportunities appear. Position yourself to capitalize on them for the future. Stay the course Markets are unpredictable, but that doesn’t mean your investment strategy has to be. Planning for every stage of your financial journey can help you manage tough times with a clear head and give you confidence that you’ve made the right decisions — both for the short and long term. Michael Toth is senior vice president of wealth management for UBS Financial Services Inc.
Farmers adapt to changing markets COVID-19 7 Continued from page 1 cialty crop state — from greenhouses and nurseries to cherries, dry beans, apples and asparagus — Michigan grows it all. MDARD supports the idea of a Produce Stabilization Program. •Livestock: With consumer demand down, difficulty getting labor and multiple processing facilities closing, the beef, lamb, pork, and poultry industries are facing increased pressure to stay in business. MDARD is asking for increased market access, possible emergency federal loan assistance and direct payments to producers. •Farmer specific need: MDARD is asking for temporary flexibility on farm loans recently announced by USDA’s Farm Service Agency to be made permanent for the duration of the pandemic response and subsequent economic recovery. ALM is specifically asking the USDA to intervene with a comprehensive plan that ensures farmers survive the pandemic by supporting a financial safety net, improving existing nutrition programs to address food insecurity and maximizing international food aid, he said. Mary Kelpinski, CEO for the Michigan Pork Producers Association, said farmers still are raising pigs, although there has always been a labor shortage at processing plants. Now, she said, COVID-19 has added to that labor shortage. “The plants are clean, and it is
not anything that the employees are picking up at the work environment, but it is what they are picking up from the person next to them,” she said. “Some of the plant workers have got COVID-19, others have had to stay home because their kids aren’t in school anymore so someone has to watch the kids, or they might be taking care of someone who is at home and is sick. So those three things combined have really (created) a shortage of employees being able to work at processing plants.” In addition to labor shortage, the pork and dairy industries have seen their markets dwindle. Kelpinski said there is a large supply of hogs and the loss of food services such as restaurants, commercial kitchens, colleges and schools have negatively impacted the pork industry because food services require a different specification for the type of meat they provide. “When you go to the grocery stores, which is retail, you can pick up a one-pound package of bacon, but for food services, they don’t want a one-pound package of bacon, they want a 10-pound package of bacon and they want it laid out so they can put a sheet of it in the oven to cook it,” she said. “So, it is a completely different packaging than what we get in the grocery stores and that is a part of the problem, too, because some of the products that go through the processing plant are cut with specifications for
food services so it can’t go to the retail stores. Food services account for about a third of the pork that is produced.” Kelpinski said retail is doing extremely well, however, and they’ve seen grocery store volumes up significantly because people are staying home. She said sales to the retail sector have increased approximately 78%. The Michigan Milk Producers Association is a dairy farmerowned cooperative serving approximately 1,300 dairy farmers in Michigan, Indiana, Ohio and Wisconsin. It operates two manufacturing plants in Michigan and a cheese plant in Indiana. According to Joe Diglio, president and CEO for MMPA, as warmer temperatures approach in the spring, milk production increases with the favorable weather and the dairy industry enters what it calls “spring flush.” He said farms in Michigan produced nearly 11.4 billion pounds of milk, or around 1.3 billion gallons of milk in 2019. However, like the pork industry, the dairy industry, which also produces cheese, butter, ice cream and milk powder, among other things, heavily depends on food services. The decline in food service sales has not been offset by the increase in retail sales. Diglio said market analysts estimate that half of all butter and cheese in the country is consumed in food service establishments. “Milk is a perishable product
and needs to be processed in a timely manner once it leaves the farm,” he said. “Many processors that supply food service markets have had to reduce or change their production schedules. Meanwhile, some processing plants that produce retail products are adapting to a surge in demand. Overall, supply exceeds demand by at least 10% around the country and this gap may continue to widen as the stayat-home orders across the country continue.” The downturn in the dairy commodity prices have resulted in a direct impact on the amount local dairy farmers are paid. Because the food service market has been diminished due to COVID-19, ALM would like some of the similar assurances Perdue is pushing for, but some of their demands are different: •Massive, immediate pork purchases by the USDA of $1 billion to supplement food bank and other feeding programs, including accommodation for pork products packaged for the food services market. •Equitable direct payments to producers, addressing all market participants (i.e., those who own hogs and those who care for them). •A quick agreement prompting China to lift its punitive tariffs on U.S. pork and accelerating pork exports to the world’s largest porkconsuming nation and helping China meet its phase one commitments to the United States.
Community foundation launches loan program 7 Continued from page 3 the CFHZ and chairperson of Metal Flow Corporation, said the LOC “is a combination of the ability for us to utilize the flexible assets of the community’s endowment to respond to the changing needs of our community and the ingenuity of CFHZ to provide innovative solutions to serve our community in its time of need.” Added Goorhouse: “Our goal is to hopefully not lose too much nonprofit capacity during this crisis so we can come out the other side and still have strong
nonprofits.” Additional specifications of the Line of Credit Guarantee Program through WMCB: It is a three-year, interest-only LOC, meaning the nonprofit only has to pay interest during the three-year term, but the full amount of principal and interest must be paid off by the nonprofit by the end of the third year. The LOC has a floating interest rate of the current prime rate with a floor of 4%. This means the interest rate will be 4% unless the prime interest rate goes above 4% (it is currently at 3.25%).
WMCB has waived all loan origination and closing fees. The nonprofit can draw on the LOC throughout the first two years, but the third year of the LOC is for repayment only. The dollars from the LOC can be used for any operational expenses but cannot be used for capital-related expenses, such as facility improvement. Applicants should check with CFHZ if they are unsure if a specific expense is considered a capital expense. In addition to guaranteeing the LOC, CFHZ will provide reimbursement to the nonprofit for all
interest the nonprofit has paid on the LOC during the first two years, up to 4% per year. During the third year the LOC is open, CFHZ will not reimburse interest costs paid by the nonprofit. Applications are due Friday, April 24. Goorhouse said this is not meant to limit applications; it is the foundation’s attempt to get the lines of credit established quickly to provide the greatest possible benefit to participating organizations. Full eligibility guidelines and details for how to apply are at cfhz.org/lineofcredit.
can mask other health problems 7 Continued from page 3 occurrence locally. “Hopefully, that will persist,” Heiser said. “You can markedly influence the risk of a heart attack if you come to the hospital, and some of these complications are quite rare when heart attacks are treated in the usual way.” Spectrum Health recently published a statement saying COVID-19 also can do alarming damage to the heart. According to study from JAMA Cardiology, one out of five patients with COVID-19 suffer heart damage, which can lead to further risk for people with a preexisting condition. Dr. David Wohns, division chief of cardiology for Spectrum Health, said patients with cardiovascular disease should make sure they are current with available vaccinations, including the pneumococcal vaccine, as well as follow CDC guidelines regarding sanitation and proper social distancing. “For people with underlying heart conditions, the infection can be more serious with a greater chance of hospitalization and even death,” Wohns said. “This is especially true for those over 65 years of age with coronary disease or hypertension.” Wohns agreed with Heiser’s concern that not getting immediate treatment for heart-related symptoms can result in long-term consequences or even death. “My recommendation is that any person with prior heart disease or at risk of heart disease who is experiencing chest symptoms or shortness of breath reach out to their primary care physician or cardiovascular provider for guidance as soon as possible,” Wohns said. Spectrum Health Now, the group’s virtual treatment option, also is available for heart patients not experiencing a need for immediate care and who wish to stay home to prevent contracting or spreading COVID-19.