As everyone continues to fight the virus, financial worries have taken a front seat with uncertainty looming over all of us. Some of us are skeptical about the future, whereas some are experiencing the cash crunch right now with hidden expenses and salary cuts. According to a survey by McKinsey, although 57 per cent of Indians are optimistic about the rebound of the economy, 76 per cent are very cautious about the way they spend their money now. Additionally, Nielsen's survey says that about 21 per cent of Indians want to invest their money post lockdown. But people are now rethinking their investments and financial planning. Like every major financial crisis, this global pandemic has given us some lessons in investments which we should implement right now:
Emergency corpus planning: As people witness salary cuts and job roles getting dissolved overnight, it has only re-emphasised the need for having a robust emergency funds plan. Your emergency funds should be able to manage at least six months of your cash flow needs. These should include all household expenses, rents, premiums on insurance, and EMIs. This money can be put in a recurring account which allows the money to grow as well as ensures quick liquidity in case the need arises to use it. Most people take it for granted that the income will be steady over the next few months and make spending decisions based on that. This is a time to rethink strategies and spend your money wisely.
Look beyond domestic markets for equity investments: Diversification of your investment portfolio across markets is a good way to make sure that all money does not underperform in case of a bad economic revival. Exploring investments in other markets like the US is a great way to diversify. Additionally, some of the companies doing very well, owing to the category are technology giants, pharmaceuticals leaders, and OTT platforms – which happen to be listed in NASDAQ and NYSE. Being an extremely well-regulated market with complete transparency and stringent disclosure protocols, the US markets can easily find a sweet spot in the Indian portfolio content. Investing in the US has become easier for Indians now with some brokers and start-ups offering seamless platforms for overseas investments.
Balancing asset classes: This goes for any investors looking at investing a large amount in a single asset class. Make sure you divide your investments into different asset classes like Stocks, Mutual Funds, Gold, Real Estate, and Exchange-Traded Funds (ETFs).
Liquidity is the key: While investments are essentially a part of making your money work, it is also important to have liquidity especially during such crises. A part of your money should be put in short term investment plans across asset classes.
Health and life insurance: This pandemic has made us realise the uncertainty of life even more than accidents and serious health conditions ever could. It is important to make sure your loved ones are taken care of in case of any mishap. A comprehensive life insurance policy is a key investment that you should make to help your family deal with the emotional loss alone and not be affected by financial concerns. Also while renewing health insurance, look for companies that cover unforeseen hospitalisation.
To sum it up investors should keep in mind their objectives, investment costs, prospective returns in terms of the time value of money and balance these factors with their risk tolerance.
The author is Founder, Stockal India