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The news so far in 2021 has been just brutal, with one notable exception.

In the world of money and finance, everything’s going excellently. While rioters swarmed the U.S. Capitol building in Washington on Wednesday afternoon, the stock market was topping off a fine day of gains. Oil prices crossed the US$50-a-barrel mark this week for the first time since last February and we’ve heard that housing markets in Toronto and Vancouver surged yet again in December.

A bright future awaits us when we get this pesky pandemic under control. That’s why stocks are rising and people feel comfortable piling into a housing market that gets more expensive by the day. But what’s your plan if things don’t work out as expected?

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Rising COVID cases and slow vaccine rollouts are a threat to the rebound that should follow when the economy is fully reopened. More jobs could be lost and more hours of work cut. Even if your own job is secure, there are risks.

Governments have taken on massive deficits to support the economy so far – can they afford more spending if needed to stabilize things? Don’t underestimate the importance of this government support in helping to prop up stocks and housing.

While people were at home counting their money in 2020 and marvelling at how much there was, others were in financial trouble as a result of lost jobs and incomes (I’ll be writing next week on who’s financially resilient and who’s vulnerable). A worsening of this divide threatens prosperity for all.

Don’t sit passively while we wait to find out whether the optimism propelling stocks and housing got ahead of itself. While hoping for the best, plan for the worst.

Somewhere between $100-billion and $200-billion is sitting in bank deposits – that’s a good start. We should all cringe at the amount of money earning nearly zero interest in big bank savings and chequing accounts when better rates are easily available, but never mind. This is money that can help people through a period of reduced income or a lost job.

To build savings, see whether there are any monthly household expenses you can trim or eliminate. By keeping us at home, stricter pandemic lockdowns announced recently present ways to save.

If you haven’t already done so, carry out a risk assessment on your investments. The monumental stock market rebound from the lows of last March carried a lot of different stocks, funds and strategies higher. Now’s the time to decide whether the gains in your portfolio were earned, or just an example of flotsam riding a wave. Sell the flotsam, or at least take some profits.

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One of the top investing debates of 2020 was whether the baseline portfolio mix of 60 per cent stocks and 40 per cent bonds is no longer relevant because of the low level of interest paid by bonds. A 70-30 mix might better fit people with 10 years or more until they need their money and a realist’s understanding of stock market risk.

All others should ask this question: What is the worse outcome for my portfolio – earning a tiny return from bonds or having stocks go through a crash that doesn’t repair itself in nine months or so? The stock market treated the pandemic like an inconvenience in 2020; if there’s bad COVID news ahead, stocks might not be so resilient and bonds could be the saviour of your portfolio.

Housing decisions should be based not just on the usual question of affordability at the time of purchase, but on the sustainability of your capacity to afford a home. Consider whether a slower than expected economic recovery would leave you struggling to cover your mortgage and other household costs.

The housing market may actually be getting hotter as the pandemic news becomes more discouraging. The benchmark Vancouver price jumped 5.4 per cent in December on a year-over-year basis, propelled by a 53.4-per-cent increase in sales. The average price in Toronto in December jumped 11.2 per cent and there’s talk that the city’s previously struggling condo market is attracting interest again from investors. A few weeks ago, the Canadian Real Estate Association forecast a 9.1 per cent rise in the national average house price this year to $620,400.

Low interest rates are helping the housing market, but the main support is that people with the wealth to buy weren’t much affected by the pandemic in a financial sense. In case this changes in 2021, have a plan.

Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.

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