Financial Planning, Investments and Covid-19
News about spread of Coronavirus (Covid-19) had started coming in January 2020. During the last five-month period, the world economy has taken a severe beating. There have been job-losses and pay-cuts. Work from home has become a new reality. Word ‘lockdown’ gained so much familiarity and importance!!
Experts believe that the impact of Covid-19 is not fully known yet. There can be sectors of the world economy that could reveal surprises later. Also, it may not be the end of job losses of this magnitude either. Several businesses may get redefined and reconfigured. I believe, the impact would be known only gradually; while the governments around the world do everything in their power to revive their respective economies and ensure human welfare.
Personal finances have been impacted by Covid-19. While discretionary expenses have come down during the lockdown period, many people have felt the heat while managing their household expenses. The unprecedented event has raised concerns on financial security.
How to ensure financial security? How to prepare for an unforeseen event in future?
If you are already an active investor:
- Revisit your asset allocation. This may entail a relook at investment objectives, investment horizon and individual’s risk appetite
- Relook your insurance coverage – both life and health insurance
- Focus on wealth generation as well as preservation of capital. You may need to re-allocate your investments accordingly
- Stay invested. Stay focused on your long term goals
- Budget for an emergency fund
- Re-assess your liabilities, if any
- Review your investment portfolio periodically
If you are a dormant investor or have not invested at all:
- Outline your investment objectives and goals
- Fortify yourself and your family with right insurance coverage
- Follow goal-based investment strategy
- Follow asset allocation in conformity with your goals, investment horizon and risk appetite
- Start investments early
- Address your loan liabilities. Protect yourself against them
- Build up an emergency fund
In such unprecedented times and to meet any future financial crisis, it is always prudent to zero down on details of your expenses – those that can be categorized as ‘necessary expenses’ and those that are ‘discretionary expenses’. You can always postpone your discretionary expenses in tough times. This exercise will help you ascertain the amount of emergency fund that one should have. Covid-19 has redefined the horizon of emergency fund. Earlier six months of emergency fund was considered safe. Now, an emergency fund extending up to one year is considered prudent.
Estate and financial planning services are made available by experts at a nominal fee. One should take advantage of expert advice for one’s financial security and protection against uncertain future events.
Uncertain times like Covid-19 bring with it lot of stress, moments of anxiety and generate fear factor amongst people. But these uncertain times also bring with them wonderful investment opportunities that may be like once-in-a-lifetime. Professional experts identify such opportunities and you can use their expert advice to your advantage by locking into some great investments.
Some do’s and don’ts that investors should follow:
- Markets experience sharp corrections on the downside after every few years. Investors should avoid euphoria when markets are rallying and also control panic reaction when markets experience sharp fall
- Patience is the most important differentiator between a speculator and an investor
- A sustained fall in the markets is not the sign of avoiding investment. Rather, one should look to increase the investment. For example, rather than stopping the existing SIP (systematic investment plan), one should look to start fresh SIPs.
- A seasoned investor should look to benefit when markets are at all-time high by re-organizing their investment portfolio
- A novice investor, should seek expert guidance for wealth creation and look to benefit when markets are down
Conclusion
The pandemic like Covid-19, is an ideal example and a lesson for all those who do not believe in financial planning and just rely on their salary for meeting monthly expenses. The lockdown has made everyone realize how important is financial security. You may be investing but may still be exposed to financial stress. This unprecedented event also reinforces the argument that financial planning is a dynamic process and a regular review is necessary. There is no denying that secret to financial success lies in early start to investments.
Arnab Wealth Advisors
5th June 2020