The year 2020 will be the year that taught Gen Z that despite being the entitled generation, life could go totally out of whack.
It has been almost 2 weeks since we have been at home and as the days pass and the uncertainty of the period of lockdown increases, I find children have been able to manage the situation quite well.
From partial to full lockdown, kids have taken it in their stride and are finding new ways to keep themselves occupied other than their devices.
Nothing can prepare you for a black swan event like Covid 19 or the financial crisis of 2008.
However, how your actions on your portfolio in these situations, impacts your wealth. I have had many queries on whether to move to liquid funds/gold.
I also see many posts of investors anguished by the negative returns on investments made a couple of years back.
Clearly, investors have taken positive returns for granted.
In our community, during the lockdown, the housekeeping and other staff are not able to come and kids have volunteered to help with the upkeep of the complex.
Further many older children for the first time are doing online classes with their school teachers. Their ability to adapt to something new so quickly is amazing.
Unfortunately, I do not see this with many individuals. Investors tend to stick to tried and tested investments and not diversify their portfolio. With the falling interest rates, fixed deposit returns are falling but I find people hesitant to invest into debt funds.
The negative economic impact of Covid-19 is expected to be deep and long drawn. There are a couple of things you need to be doing with your finances. Your portfolio needs to be prepared for uncertainties. This means that you cannot rely on equity investments alone.
Build an emergency fund, with an equivalent of 6 months of expenses, which can be used if you have a temporary loss of income.
For requirements over and above the emergency fund, use other short-term investments instead of equity investments. You also need to make a plan on how you would service your locked-in payments like EMIs.
This way, even when the equity portfolio drops significantly, your essential expenses are taken care of.
If you haven’t got at least Rs 10-15 lakhs of medical cover and Rs 5-10 lakhs of critical illness cover, get it now.
I would equate this to having a home with an Internet connection (which none of us can do without!).
Diversify your assets. Just like kids are keeping themselves busy with different activities, even though they are homebound and without their friends.
Diversifying investments help to reduce the volatility in the portfolio.
The coronavirus has got us all thinking out of the box on how to pass our time fruitfully during the lockdown.
Do the same with your portfolio. Are there investments like debt funds or NPS that you haven’t invested into?
You should consider these investments over traditional investments for your financial goals simply because the expected returns would be higher.
The lockdown is going to be tough on most of us and our positive thinking will get us through it.
Similarly, not having doomsday theories on the markets will help. This too shall pass.