The pandemic has affected all economies and individuals across countries. In these unprecedented times, the governments have been trying to ease the stress, fear, and financial crunch by adopting measures to curb the spread of coronavirus and setting various measures to unlock the economy in phases hoping for a speedy revival. Along with these new practices, one must also be watchful when it comes to personal finances and investment decisions.
Maintain emergency fund
The COVID crisis has taught us the importance of maintaining an emergency fund, as a lot of uncertainties relating to businesses and job security may arise. Financial analysts advice to keep a minimum of 3 to 6 months of expenses as an emergency fund, and investing those funds in highly liquid instruments such as liquid funds or fixed deposits. Allocating savings funds into financial instruments that have freeze-in periods would be risky in such times.
Focus on expenditure management
Take a pragmatic approach towards spending and try to postpone large expenditures that are discretionary until things become normal or stable. This can help to maintain adequate liquidity and savings. Hence, keep away from spending on big-ticket or non-essential items until the utmost requirement, as a pull strategy would be adopted by online sales from e-commerce companies.
Continue with SIPs
The pandemic affected the economy and is undergoing a bear market in equities, it is likely for investors to get cold feet in investing new funds, no matter how little the amount may be. Instead of stopping such investments, one should continue based on the existing financial plan. SIPs have also started a ‘Pause’ option to support those facing salary-cuts.
Reconsider on taking new debt
It is advisable to not take new loans during a pandemic situation, as there is questionable income security with probable salary cuts, job losses on account industry slowdown. Any default in the repayment of loans could negatively impact credit score and future borrowing ability. On the contrary, try to pay-off liabilities starting with higher interest loans such as credit card debts to reduce financial burden.
Reassessing financial plan
It is times like these that allow reassessing risk tolerance appetite to revise the portfolio to the desired levels. Previously done risk assessments were in the backdrop of much more stable economic conditions, but as new contingencies arise the chances of underestimating the risks are more. Hence, it is advisable to reassess and evaluate the current financial position.
Consult a financial adviser
It is the right time to have your financial planning done by your financial advisor and adhering to the same. Any impulsive action without prior consultation could result in diminishing the financial well-being of your portfolio. In short, it is sensible to prepare an Investment Charter. It is a vision document that lays down the philosophy, framework, and process of managing your portfolio, while also aiming to understand broadly, the purpose of investment, horizon, liquidity, and risk appetite.
Warren Buffet says, “we don’t have to be smarter than the rest, but can be more disciplined than the rest. You need a reasonable amount of intelligence but the temperament is 90% of it”.
