Here are some methods that can help you cope with the financial fallouts of COVID-19.
The repercussions of the COVID-19 pandemic have been severe. All around the world, people have had to alter their financial goals. The situation is the same in India. Public, private, and government sectors have all been significantly affected, and financial markets are nosediving with every passing day. And things don’t look as if they will improve anytime soon.
Mutual funds, equities, and long-term investments are at their lowest ebb. More than ever before, there’s a need to hire a financial advisor. With most things functioning in unfavourable and unpredictable ways, a general feeling of panic has taken over. However, there are ways to control the damage. Here are some measures that can help you recover the private wealth lost in the aftermath of the pandemic:
1. Define your investment policy statement
Your investment policy statement is a crucial component of financial planning. It includes aspects such as your goals, risk appetite, return expectations, time frame, and objectives. Defining a cogent investment policy statement provides you with a clear roadmap. You can then assess the pros and cons of various financial products such as mutual funds, long-term savings funds, stocks, etc. This facilitates better portfolio management and asset allocation.
2. Consider both risk and returns
General financial discipline indicates that the higher the risk of the investment, the better the returns are. Although not universally true, the concept can be applied to several financial products. Unfortunately, investors are sometimes blinded by the lure of high returns and end up ignoring the risk component of an investment. To ensure efficient investment management, pay equal attention to the risk involved with each instrument. Given the current climate, taking on high risk can be detrimental to your financial goals. It is important to look at a potential investment from all angles before making a decision.
3. Invest in global opportunities
Diversification is one of the key principles of investment management. The term is even more relevant today as it can help you ride out uncertainties of a particular sector/investment. A great way to diversify your portfolio is to invest in global opportunities. The depreciating value of the Indian rupee can further increase the value of returns from international equities. Affluent clients can consider varied sectors such as healthcare, technology, automobile, etc.
4. Set aside an emergency fund
Financial liquidity can be your saviour in these trying times. Having an emergency fund that can meet 6–8 months of expenses can offer much-need support to help you get back on your feet. This also allows you to defray urgent expenses such as a medical emergency in the family, or keeps you afloat if you lose your job. Moreover, having an emergency fund will ensure that you’re not forced to withdraw money from your retirement planning account.
5. Find new ways to earn money
Given the state of the economy, even high net worth individuals are looking beyond their day job for additional sources of income. Job insecurity followed by pay cuts, cancellation of bonuses, and layoffs are good reasons to create an alternative stream of income. Regardless of whether you run your own business, work for a small company, or are a high-level executive at a large firm, turning a hobby into an income source can bring in more money and offer peace of mind.
6. Invest in gold
Gold is considered one of the safest investments. Its value has risen regardless of market volatility, and the returns have been higher than with other investments. The metal also plays an important role in the cultural milieu of India, which is why it can be a good idea to turn towards gold as an investment. You could even opt for sovereign gold bonds, which offer an interest of 2.5% per annum. Investing in gold can also be a great retirement planning strategy. Read this to understand how you can hold gold in demat form just like equity shares or mutual fund units.
7. Rework your existing budget
With diminishing returns and increased cost of living, drawing up a revised budget can eliminate the chance of wastage or impulse spends. This is a time to focus on essentials and cut out all other unnecessary costs that can add to financial pressure.
8. Hire a financial advisor
A financial consultant can identify with the goals of the client and offer the necessary guidance. You can avail of multiple services, including suggestions on the most lucrative financial products based on your risk appetite, guidance on how to diversify your portfolio, and creating a balance between stocks, equity, and other savings and investment instruments.
It’s been a tough year for everyone. Economies around the world have suffered and will likely continue to struggle for a while. But keep in mind that the market works in a cyclic manner; what falls today could well rise tomorrow. Instead of stressing over the dismal figures, it would help to consult a wealth management service and understand how you can come out of this situation.
You should also remember that the term ‘wealth’ can often be subjective. On paper, your investments may look like they have fallen, but you will not suffer a loss unless you sell them at a lower price. So, be patient and wait for the market – and your wealth – to recoup. Did your income change during COVID-19 crisis? Here are some tips to get back on track