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8 Money Experts on How to Survive This Volatile Economy

Some of the sharpest minds in the financial world break down what's going on and how you can ride out this storm

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When it comes to money, there's a lot to worry about these days. So we consulted some of the sharpest minds in the financial world for their views on what's happening and how you can best get through it.

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Barry Ritholtz, chairman, Ritholtz Wealth Management

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Mellody Hobson, co-CEO, Ariel Investments 

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Jane Bryant Quinn, former columnist, AARP Bulletin

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Carrie Schwab-Pomerantz, president, Charles Schwab Foundation

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Ric Edelman, founder, Edelman Financial Engines

Jill Schlesinger: What words of comfort do you have for people who are shell-shocked by the market's decline?

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Barry Ritholtz: I am fond of saying this is a feature, not a bug, of the stock market. Stocks go up and down regularly. Think back to what stocks did in 2008-09, 2000, 1987 and 1973-74. This is a cyclical phenomenon, just like expansions and bull markets. Look at this from a long-term perspective, and you see the same things coming around again and again.

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Mellody Hobson: It could get worse before it gets better, but there's no reason to believe the market won't continue its long-term upward trajectory. There is no 20-year period — not one — when the stock market has lost money. That underscores taking a long-term view.

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Ritholtz: You have to step out of the moment and think not in terms of minutes, days, weeks, but in terms of years, decades, a lifetime.

JS: What would you say to older people who think they need to pull their money from the stock market now and have it in cash?

Carrie Schwab-Pomerantz: People who panic and sell lock in their losses. In 2009 the Dow Jones Industrial Average dropped to 6,500 and today, even after the big declines in March, it's around 20,000. People who held on to their stocks have actually performed pretty well, despite these recent big dips.

Ritholtz: Nobody who retired in 2005 said to themselves, Hey, remember that Monday when the market crashed in 1987? Thank goodness we sold.

Schwab-Pomerantz: Saving and investing are both important, but you can't save alone. I get that people who save and don't invest feel safer in the short term. But in the long run, their money is going backward. Because of inflation and taxes, they lose purchasing power.

Ric Edelman: Inflation is around 2.5 percent, which means if you're earning 1 percent in the bank, you're actually losing money. Retirees spend more on health care than any other cohort in the U.S., and health care costs are rising three to four times faster than the overall inflation rate. If you have all your money in a bank account, you're going broke safely.

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That's why we invest in stocks, real estate and foreign markets. It's not because we like to take those risks. It's because we recognize we have no choice. Every investment, including bank accounts, has one form of risk or another, and that's why we diversify.

Abby Joseph Cohen, Senior Investment Strategist, Goldman Sachs

Mohamed El-Erian, chief economic adviser, Allianz

Diane Swonk, chief economist, Grant Thornton

JS: Are you saying people shouldn't adjust their investments at all?

Hobson: If you have a plan, you stay the course. You do not change your pivot because of recent events. That's how you lose.

Jane Bryant Quinn: The idea that somehow you should not be in stock-owning mutual funds early on in retirement is just wrong. Part of your money should be in bond funds — Treasury bond funds, not junk bond funds. Part of it should be secure in a cash bucket. But at 60, 65, you are still a long-term investor, meaning some of your portfolio stays in stocks.

Schwab-Pomerantz: Even when you're in retirement, you should have at least 20 percent of your portfolio in diversified stocks because retirement can be 30 years, 40 years.

JS: What advice do you have for people who don't have that kind of money — who have no investments and are living week to week?

Edelman: You have to be in survival mode. There are only two expenses you need to be concerned about right now: food and medicine. That's it. Don't be concerned about paying any other bills. This situation you're in is not your fault. And everybody knows it.

Quinn: Presumably, you're not spending as much. If you have any money coming in, try to put it into savings so that you'll feel a little more secure.

JS: What's the outlook for the U.S. economy?

“If you have a plan, you stay the course. You do not change your pivot because of recent events.” 

—Mellody Hobson

Abby Joseph Cohen: The big question is how long will the pandemic last. If it begins to ameliorate over the next small number of months, then we can feel more comfortable that the economic impact will be more short-lived.

Mohamed El-Erian: The rest of the world is going to be hit very hard, and we are unfortunately going to feel some of that. It's very hard to be a good house in a bad neighborhood. As hard as you try, the neighborhood matters.

Cohen: The U.S. economy was in a stable and steady condition before this situation developed. It was in better shape than China, where there was a deceleration underway, or Europe, where growth was already under 1 percent.

El-Erian: We are the least problematic country out there. In absolute terms, this is going to be a hit. But in relative terms, we will do better.

JS: When will things get better?

El-Erian: The spread of the virus around the world does two things. It paralyzes economic activity, and it creates fear, so that amplifies the economic effect. To address these issues, we need evidence that we can contain the spread of the virus, and we need indications that we can increase immunity and increase the recovery rate. Until that happens, the global economy will continue to face massive — I stress massive — contractionary winds.

JS: The Federal Reserve Board cut interest rates to keep the economy going. But many older people with their money in the bank say that punishes them for being savers.

Diane Swonk: Nothing could be further from the truth. The Fed is using the crude tools they have to try to stimulate the economy. Because, even if you are on Social Security and you're withdrawing from your savings account, you want lots of U.S. workers paying their Social Security taxes to keep the program healthy.

People look at their own financial situation — understandably — and they say, “This is penalizing me, so it's terrible for everyone.” As hard as it is for individuals, the government doesn't make monetary policies for individuals. It has to do it for the aggregate.

JS: Based on the $2 trillion aid package that Washington passed in March, should we worry about the budget deficit?

Ritholtz: My entire adult life, I've been hearing that the federal deficit is a giant danger and we're all going to hell: “Because of the deficit, nobody will lend to America, and our interest rates will go up.” All that criticism has been wrong, and it's been 50 years of hearing this.

When we talk about the deficit, the most important ratio is our debt-to-GDP ratio, meaning how well is the economy doing, and is that sufficient to service the debt? Japan's debt-to-GDP ratio is 237 percent. In the United States, it's 108 percent. Look at the 10-year bond: People are willing to lend money to Uncle Sam at about 1 percent. The market is saying they don't think the deficit is a problem.

Hobson: You always want to be mindful of debt. Always. If you're an individual, if you're a corporation, if you're government. If you can manage that debt, however, it should not overwhelm the conversation. A growing U.S. economy will be able to manage the debt.

JS: Are Social Security and Medicare at risk?

Edelman: You don't have to worry about the government eliminating them. They are among the most popular programs in the country. It is unrealistic to believe that Congress would make these programs go away.

At the current rate of withdrawal, though, and under current law, all Social Security beneficiaries will see their benefits cut 23 percent in about 15 years. It's time for a bipartisan solution to the problem. One party would prefer to raise taxes to preserve current benefits. The other party would prefer to lower or delay benefits in order to not raise taxes. The two are going to have to compromise. The sooner that they begin working on the solution, the less painful it will be for all Americans.

JS: Any parting advice?

Schwab-Pomerantz: It's so important for everybody to understand the basics of personal finance. Whether you are working with an adviser or delegating finances to your spouse, you need to know how to ask the important, hard questions rather than putting your head in the sand. It's like knowing how to swim. It doesn't matter that your partner knows how to swim. You also need to know how to swim.

Hobson: We've got to get better at squirreling away an emergency fund. I grew up with no money, so I know how hard this can be when you are desperately trying to make ends meet. But a financial cushion is very reassuring. More importantly, it will help you in the tough times that will come. They always come.

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