5 Financial Lessons Learnt from Coronavirus Pandemic
By Akhil Chugh
Date July 31, 2021
It has been over a year-and-a-half since the first novel coronavirus case was detected and since then it had quickly crossed all borders and reached almost every country on the planet. And just when we were making some sense of the crisis at hand, it transformed into a full-blown pandemic, infecting billions of people and taking the lives of millions. Besides the human loss, it broke the back of the global economic system, robbed many of their jobs, shutdown of many businesses and led to a complete collapse of economic activities. Amid all, a cloud of uncertainty hovers over the markets and investors.
Should an investor draw his money out from his/her long running SIP because the market is volatile?
Should an investor pause his regular investment in a SIP because it seems to be the right thing to do during the COVID affected times?
Should an investor start withdrawing money from not just SIPs but also other equities, debt, liquid, gold funds given the whole investment space has become so scary?
If you think the answer is YES to any of the above questions then it’s the time for a major reality check. Here are 5 important financial lessons that investors need to learn from this ongoing pandemic to make the right investment decision.
Benjamin Franklin once said, “Out of adversity comes opportunity.” So, we need to learn the lessons that every problem teaches us.
5 financial lessons from pandemic for investors:
1. Do not Stop or Pause your SIP:
This is the perfect time to max out your investments in certain classes, especially equities. Long tenure SIPs help in averaging the cost as equal amount is invested regularly every month at different NAVs. SIP works well in a volatile market as in the months where markets are down you get a greater number of units (Units are bought depending on your amount invested and NAV) as the NAV is down and when the markets are up you get a smaller number of units. But overall, the prices (NAV) get averaged out.
Investing in mutual funds via SIPs helps you to average out the cost of your investments – rupee cost averaging and take advantage of the power of compounding to create wealth in the long term.
2. Creating an Emergency Fund is essential:
There have been huge job losses or pay cuts during the pandemic. People with substantial financial commitments like home loans or other loans have faced huge issues. The lesson learned in this situation was that everyone should keep aside an emergency fund in liquid form.
An emergency fund can help one stay afloat in times of financial crisis. The general rule of thumb is to have anywhere between three to six months’ worth of essential household expenses. If you are a family with kids and only one earning member, the amount should ideally cover your expenses for 12 months. Also, this fund should be quickly and easily available as cash, if and when required. These funds can be kept as bank deposits or can be invested in liquid investments to earn returns.
Most importantly, the fund should be considered sacrosanct – available for use only in case of an emergency.
3. Always diversify your investment portfolio:
COVID-19 pandemic has shown us the wisdom in diversifying our investments. Not all investment options perform equally well at the same time. Spreading investments across various asset classes helps reduce risks. In recent months, some investments performed considerably worse than others.
For example, travel-related companies such as airlines, for example, were struck harder than gold mining companies. By putting a percentage of your funds into different types of investments, as you can through balanced mutual funds, for example, you minimize the chance that one economic event will harm all your investments equally.
However, these investments should be based on the risk appetite of an individual. Also, the longer a person stays invested, the better are the chances of desired returns.
4. Life Insurance and Health Insurance are crucial:
One of the most important learning from this pandemic is that life is uncertain. The pandemic has not only proved this to the world but has also shown us how unpredictable life can be. Hence, ensuring financial security for the family is of top priority. Investment in a Term Insurance plan should be made towards ensuring adequate coverage for the family at a small premium i.e. an amount that would keep the family financially stable in case something were to happen to the breadwinner.
Health Insurance for the family is a must too, considering the increase in diseases and rising healthcare costs. Good health is a basic necessity, these costs can neither be ignored nor negotiated. Hence, it is important to have satisfactory health cover for the entire family.
5. Plan your expenses:
Personal financial planning is vital. Income, expenses, savings, investments and credit need to be aligned to the family’s short-term and long-term needs, wants and life goals. In an ever changing and evolving global economic environment, it is important to take advantage of the opportunities as well as stay prepared for emergencies like covid. Right financial planning helps one stay in charge in both these situations.
We had a regular income and we never thought we would be faced with a pandemic. But this pandemic has also taught us that we could live on a budget and thereby even save more. Those who were always following a planned budget for their monthly expenses could adapt easily as compared to those who believed in just earning and spending. Therefore, plan your expenses and be prepared for the unforeseen.
Key Takeaways from Net Brokers:
- Financial discipline and prudence are vital to sail through such tough times like pandemic.
- Do not hold back from continuing to make investments in mutual funds if you have sufficient monetary strength.
- Do not stop/pause your SIPs. Net Brokers strongly suggest its investors to continue their SIPs for long tenure to take advantage of rupee cost averaging in beating market volatility and benefit from the power of compounding to create wealth in the long run.
- Having an emergency fund alongside your investments in mutual funds grants you a lot of peace of mind. This fund should be enough to take care of any medical or family emergencies that may arise. The size of your emergency fund should be enough to cover six months of living expenses.
- While you are not stepping out of your homes for safety reasons, you can still keep investing or make a fresh investment in a mutual fund scheme of your choice by downloading the Net Brokers app. With an online KYC and a seamless investment interface, Net Brokers App is a one-stop solution for all your investment needs.
The current situation is not to create a panic, but to maintain calmness. As an investor make use of your past experiences. Keep in mind the situation and think about the situation one year down the line before disrupting or withdrawing your portfolio completely. Take the systematic accumulation and become a long-term investor to achieve your financial goals.
For more information, get in touch with us today!
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Happy investing.