In the backdrop of the pandemic and ongoing crisis, it becomes imperative to go back to essentials and prioritizing individual needs to plan investment journeys. A new paradigm shift is noticed as there are extensive cost-cuts, layoffs, and the introduction of work-from-home culture that seems to accelerate automation across all spheres. Also, the globally increased debt load appears to be a major concern as high levels of debt could diminish productivity for the future generations responsible for repaying this debt. Inflation across the countries could be higher, in the backdrop of lower expected growth. Even on finding a vaccine and cure to curb the pandemic, it could take time for the whole world to be vaccinated.
In this milieu of uncertainty, higher inflation, and diminished growth prospects, there are a few points that can help one guide with asset allocation. These points could be likewise relevant to individuals across the wealth spectrum.
Emergency Funds
Until a cure or anything for protecting oneself from the ongoing uncertainties is found, it makes sense to have at least 6 months to a year’s worth of costs saved for emergencies in cash and equals. There is no assurance on the extent of crisis even after a few months down the line. This creates a rising need for savings rates. Postponing non-essential expenditures and prioritizing essentials is a suitable approach to be followed till the world is normal again. Funds for any expenses due in 3 4 years must be kept in Fixed Income assets like FDs or high-quality short-duration bond funds.
Productive Assets
In order to benefit from productive assets and knock-off inflation, equities along with a long-term approach are sensible. Here the conviction should be to buy businesses that can be lucrative and grow despite the lockdown. Hence companies with high ROEs and high margins and services which benefit from COVID are likely to be telecom, health insurance.
Defensives
By defensives, we mean survivors who can sway the crisis to their benefit. There is a higher probability of HDFC Bank adding the next 1 lakh crore in market cap in the next 3 years than a small-cap company, not just any large-cap, but pilots in their sectors. Consumer-focused business sectors like packaged food, high-quality banks, two-wheelers, non-discretionary appliances, pharmaceuticals could fall into this category.
Buy Protection
It is prudent to buy insurance, term life, and health. In order to provide for payments when they are really needed, with survivability being the prime concern in everyone’s minds, insurance is a must in the current setting.
Finally, as we search for income and growth in a world starved of both, we have to focus on the costs we are incurring to manage our investments. Over a period of time, these costs combine to a snowball significantly. This can be composed by educating about the various products and investment options available in the market. A self-directed approach with the help of an unbiased advisor is a better plan than purchasing an expensive-products with almost no assurance of returns.
