Updated: May 4
Uncertainty, doubt, and panic about the future have irretrievably been a part of life. The COVID-19 outbreak has unleashed and highlighted this in the most acute way possible today.
Financial security pivots on the financial planning we do before you encounter the repercussions of a crisis.
What's yet to come remains a question and where this will end is still unknown. Having a plan in place for any unforeseen circumstance is more crucial than ever now.
In the chaos of the COVID-19 pandemic, it may be tough to keep a watch on your long-term investments. However, it is essential to survive this stress test!
"Sometimes a ray of hope is all the sunshine you need even in the darkest of times"
Here are a few tips or insights that may help you with effective financial management to tide over the pandemic.
Tip #1: Insulate yourself from short-term shocks
Amidst the escalating health concerns and the repercussions on the economy, it's your first priority to review and stay on top of your 3 biggest financial allies during these times.
1. Emergency funds
This is the most crucial of all and we can't stress that enough.
Have a contingency fund in preparation for such testing times. Ensure that it is highly liquid and top-up any occasional withdrawals.
As a rule of thumb, it is advisable to save up to 6 months' expenses for an emergency fund. If you haven't planned it already, you may explore it here.
2. Health insurance Check your health insurance for coverage of COVID-19.
Take steps to ensure your near & dear ones are covered in the worst case to avoid any financial shocks.
3 .Term insurance Review your term & life insurances to eliminate any undue worry.
Tip #2: If you are well prepared for your goals, take it easy
The biggest and most immediate impact of the economic downturn would be on your investments in the equity market and the subsequent impact on your financial goals. Especially if you have been investing for some long-term goals like a child's education, your retirement goal, or any other huge expense.
Let's say your goals are less than 2-3 Yrs away and you have moved most (at least 70-80%) of the funds into safe and steady debt-based instruments like Fixed Deposits or Debt Funds, then there's absolutely nothing to worry.
At this juncture, the best that could be done is to wait for the markets to recover (Well, duh?). In any case, it shouldn't make more than a 5-6% difference to your goals.
Tip #3: If your goals are a long time away, stay the course
The unforeseen and sudden Sensex downfall and the sensational headlines might make you panic.
However, if your goals are a long time away, say more than 5 yrs away, then panic selling is a major strategic error because of which you will endure immediate losses as well as losses from lost out gains in the future (maybe even very near-future).
Building a long-term investment strategy for your goals is an absolute necessity, where you will move your funds from equity to debt over time to de-risk your goals from market volatilities.
In fact, it might be a great time for you to invest at the current discounted rates. Economies always recover, even after pandemics as in the case of the Spanish Flu of 1918, where some regions actually saw increased economic activity afterward. Read more here.
So, the best thing to do right now would be to take the panic-inducing news with a pinch of salt, relax and stay the course.
Tip #4: Review your financial goals, plans, and strategies
Given the unprecedented volatility in markets and economies, you must be wondering (if you aren't already) how to navigate through the various financial instruments out there to make the best of your financial life.
Our simple answer to this complicated question is to just forget about the day-to-day fluctuations of markets or trying to over-educate yourself about literally every possible investment option, etc.
Instead, let the focus be on YOUR Financial Goals.
What goal would you like to accomplish? How much do you need for your retirement or a big planned expense? How do you get there? How much should you be saving and how much debt should you use to effectively reach your goals?
This kind of a thorough approach towards Financial Planning is unfortunately not utilized by more than 80% of Indians, leading to lots of unnecessary stress as well as hidden losses of up to ₹ 1 Crore over a lifetime.
Holistic financial planning with advanced long-term strategies and 24/7 seamless tracking helps you stay on top of your goals. MoneyPlanned helps you do just that and much more.
Tip #5: If you have the risk appetite, take the opportunities
"The intelligent investor is a realist who sells to optimists and buys from pessimists" -Benjamin Graham, The Intelligent Investor
Given the weak rates of the equity markets right now, it is actually an ideal time to buy the right kind of mutual funds or stocks.
If your goals are a good time away and you have the risk appetite to stomach the current volatility, the COVID-19 economy might be a once in a lifetime opportunity for good investments.
Beware and take the utmost care in the selection. However, the recovery rate from the current situation might be different for different industries and is highly unpredictable as of now.
As Warren Buffet says, "You don't make money based on what’s going to go on next week or next month".
If you can afford to take the opportunities, develop a sound knowledge and an intuitive sense of understanding of investments so you could make the best of opportunities around right now.
Disclaimer: These are opinions and recommendations for information purposes only, and we cannot or do not claim to predict the economic outcome of the pandemic as it progresses.