In the middle of COVID (remember that?), I was scared. Anxious thoughts. What’s going to happen to the global economy? How to invest when the world is shutting down?

Quoting an article I wrote in April 2020:

“Build up your emergency savings, then continue investing normally for the long term.”

Six years on, I can’t get through a morning without checking the latest news on Iran. I worry more than ever. Oil prices are whipsawing above/below $100 a barrel, global supply chains are under pressure again, and I keep hearing doom about World War 3.

How to spend and invest money during such uncertain times?

I still believe in my previous quote about emergency savings and sticking to a long-term investing plan. But that was six years ago. It’s time for a review — and reconsider what I’m doing next.

(Note: This is what works for me, so I can’t say anyone else should follow my plan. But hopefully you’ll find some of my deliberations here useful.)

Increase: Emergency Funds

The benchmark most commonly cited by financial advisers is: 3-6 months of essential expenses.

Confession: I’ve never liked having much in emergency funds because it’s painful to see a chunk of cash generating lower yield.

However with recent turbulence, and as I’ve entered my 40s, I’ve become less risk-tolerant. There are tail-risk scenarios where you need cash, fast. At this stage of my life, I’m aiming for 12 months of essential expenses.

I’m no longer optimizing for highest yield. I’m optimizing for peace of mind.

The great thing about modern fintech solutions is they give you higher yields + faster withdrawals. So you don’t need to put 6 months of expenses into a 0% current account.

Instead, you could “layer” your emergency funds like this:

• Layer 1 — Able to withdraw cash immediately: 1 month in savings accounts
• Layer 2 — 1-2 business days to withdraw: 5 months in money-market funds
• Layer 3 — 1-3 business days to withdraw (but may incur penalties): 6 months in treasury bills / certificate of deposits / fixed deposits

Some other tools to consider: In any “normal” emergency (e.g. accident, sickness, repair), you could always use a credit card. Yes, you eventually need to pay the bill, but it gives you flexibility to pay later at 0% interest — so you don’t have to keep so much in Layer 1.

Stablecoins — e.g. USDC issued by Circle, an NYSE-listed company — are another interesting tool. I live in Asia, but want some liquid emergency funds in USD. This isn’t for everyone, but I’m crypto native enough to manage the risks. USD stablecoins are easier than dealing with actual US dollars for me.

Review: Portfolio Allocation

Do I have enough cash or cash-like assets?

Is my portfolio overly aggressive?

Should I get some gold?

Over the past five years, I’ve relied almost entirely on my financial advisers to shape my investment portfolio.

For practical reasons. I don’t have time to look deeply into my portfolio anymore. However, if I wasn’t working with advisers, I’d probably put a chunk of my investments into a traditional 60-40 stocks-bonds or all-weather portfolio. (Note: I’m very hands-off-conservative with my “traditional” portfolio because I actively manage a separate crypto portfolio.)

With the recent macro uncertainty, I can understand the attraction of all-weather portfolios. They’re designed to perform in all scenarios — including things like wars. Look under the hood, and you’ll see allocations to commodities/gold/real estate that are rare in other portfolios.

My theory: Many investment portfolios today were designed in times of undeniable US dollar supremacy. Considering the recent questions around the future of USD dominance (h/t Ray Dalio), it makes sense why people are thinking about gold, commodities, and other inflation hedges.

Rebalance: Diversification of Assets

Do I have too much invested in a single asset, country, currency or platform?

One of the Decentralized Finance (DeFi) platforms I use recently got hacked. I didn’t have too much crypto there, but it still hurt.

This isn’t a recommendation to panic sell. It’s a reminder to self — I’m good at buying assets, expert at holding, but terrible at selling. I hate the idea of people dying in wars, but it’s also a wake up call: get your money out from things that don’t serve you anymore.

And buy more quality assets, less speculative ones.

On the flip side, I’ll share something I did right: 10 years ago, I realized most of my investments were denominated in my home currency. So I started diversifying into international assets. It’s taken time, but after a decade, I’m much happier with my eggs in multiple baskets.

Reduce: Discretionary Spending and Overseas Travel

No additional watches for now. I shall appreciate what I already have.

Less visits to high-end restaurants. Even at more affordable places, you can still enjoy most of the benefits of eating out. There’s diminishing returns from Genki Sushi to Nobu.

Local destinations for vacations. Not keen on flying long distance with these fuel prices.

Besides, if you’re like most people, you’ve probably neglected to explore your own city’s attractions for a while. It can be lovely to play tourist in your own country.

Maintain: Relationship-Enhancing Spend

True wealth isn’t just big numbers on a screen. Dramatic thought experiment: if the world really ends in a big ball of fire next month, what’s all the money in the bank for?

Wouldn’t it make more sense to spend on worthy things while we still can? It’s the same argument against postponing meaningful life experiences till after retirement. Tomorrow isn’t guaranteed. Every day we are one step closer to death.

So even though I’m reducing most types of discretionary spending, I’m still going to spend on experiences with my loved ones.

No Japan trip this year, but I’m getting on domestic flights to go visit my parents.

Reconcile: Conflicting Thoughts

On one hand, I’m an optimist. I believe things get better over time. And over long periods of human history, indeed they have.

On the other hand, I’m a Christian. And any Abrahamic-religion (including Islam and Judaism) believer knows the concept of the end of the world.

There are other questions I struggle with: I’ve been saving and investing for 20 years now. I can see the option to retire on the horizon. I’ve paid my tithes and given to charity. What remains is my money. And yet I ask myself, is it ethical to have years of savings locked away when children are dying in wars?

Am I the fool whose grain in the barn is worthless when God calls me to account?

I don’t have great answers. I’m still searching. Though I recognize and need to be grateful these are first world problems — higher-level questions on Maslow’s Hierarchy of Needs. I probably wouldn’t be thinking about them if I was hungry and lonely.

For today, what I can suggest is to earn, invest, spend and give according to your conscience. Logically, I believe this uncertain world will get better. Emotionally and spiritually, I will prepare if it doesn’t.

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Pic from Pexels: Golboo Maghooli

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