It is no longer news that the economic shock of the coronavirus pandemic has been unprecedented.

A pandemic is an unfortunate event to hit the global economy as its far-reaching impact leads to recessions, currency devaluation, among others.

You may be thinking that this must certainly be the worst possible time to invest your hard-earned money. Maybe, you are considering selling everything and hiding under your covers until this pandemic comes to a halt.

This pandemic hit the global economy when things were already looking shaky. Hence, in the given situation, the need for prudent financials cannot be overemphasized. One must put in preventive and corrective measures to ensure overall financial wellness.

During unprecedented times like these, this article will help you cut through the panic and clutter and open your eyes to trends/opportunities in the current market to equip your investment decisions. Every investor approaches risk differently, hence, there is a need to put on your thinking caps to help you wade through this storm and still have your investments intact. Here is where you need to start from:

1. Get to restructuring your portfolio

Four key elements must be considered before investing in this period. First, you must build for yourself an emergency fund which can be done by setting aside 3-6 months of living expenses. Once you have handled this, think of investing for short term goals such as a wedding or saving up for higher-education. You can do this by committing funds towards investing in any short-term asset that doesn’t risk your core amount.

You can follow this up with investing for expenses you can foresee over the next 3-5 years. You can invest in mutual funds at this point and can then take either moderate or aggressive risks based on how risk-averse you are. Neither one is wrong or right. Then, it’s the big picture time – invest for long-term goals such as retirement that are at least seven-plus years away. You can go for a concentrated stock portfolio here – but only under the guidance of a fabulously proven advisor – not based on tips. A balanced portfolio such as this will help you sail through to the other side with a big smile on your face.

2. Revisit your SIPs with discipline

As the months progress, one thing you need to stay on top of is your SIPs (Strategic Investment Plan). Do not stop them or become frantic due to the news you hear every day. Staying focused on your SIPs ensures you do not succumb to fear or greed when making investment decisions during this time. Stay on-course and avoid taking any big decisions. Remind yourself constant about why you had a plan in the first place.

3. If you have cash, it’s time to be smart & aggressive

If you have some money lying around, it would be good to invest wisely right about now. If you’re itching to take action on some cash, think of adding money to an asset managed by a proven fund manager. However, have a plan that allows you to deploy it over the next 2-3 months if you are aggressive. This is the period where you have a chance to balance your investments while being cost-effective.

4. Go in search of quality advisors & securities

Seek out people who are obsessed with getting value for your securities where investments are concerned. In a pandemic, you need high-quality financial advisors with a proven track record to steer you towards the right assets. Your investment portfolio needs to reflect a combination of data and human experience and the right hands are needed for this.

5.  Align your investment decisions with the changing reality

While the danger of a full-blown global recession looks more and more like an imminent reality, a liquidity crunch coupled with high inflationary pressures may happen in line with this. It is advisable to set up short-term financial goals in view of this. Your investments should be adequately liquid to address contingencies and short-term needs.

6. Analyze your financial records

This is the best time to closely monitor your financial records to ensure that things like a will, insurance policies, etc. are in place.

The best part to take is to do this:

As a precautionary measure, prepare a list of assets/ liabilities in the form of a balance sheet and share it with someone you trust. You can also get in touch with a trustee firm like Quantum Zenith Trustees for guidance on safeguarding your assets in the event that you fall victim to the pandemic.

Keep your life and medical insurance policies handy and easily accessible. Also, share the details with immediate family members. In essence, do well to ensure that your financial documents are appropriately managed, documented and necessary action is put in place.

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7. Financial prudence should be your watchword

The pandemic and its uncertain nature demand cutting down unnecessary expenses and racking up lines that would only increase your liabilities.

The key takeaway here is that as an individual or a business plan your expenses well and be cautious rather than sorry. Trim down the fat and stay lean and mean.

8. Be ready with a backup plan

Nobody’s source of livelihood is secure in a pandemic. Pre-empt the possibility of salary cuts, job loss, or drop in company revenues and create a contingency plan to face this situation. It is advisable that one should re-evaluate their financial position and ability to service debts along while meeting necessary expenses. Investments could be rerouted to liquid assets to avoid sudden cash crunch and avoid the risk of being a financial defaulter. Get your plan B ready to ensure regular income graces your accounts as that would be helpful in tumultuous times presented by a pandemic.

9. Check out your insurance

Never joke with insurance. The current pandemic has brought to fore, the need for insurance in uncertain times. Choosing a life or health insurance plan would be a prudent decision if you haven’t already made the move to get one.

Getting your investments to operate optimally enough so they can grow and perform well in a pandemic is an uphill battle that must be fought alongside your mental and physical health. The saying tough times never last, but tough people do is apt in describing what your mindset should be.

Better planning and review of financial objectives will go a long way in emerging from tough times like a phoenix from the ashes. Situations like this reiterate the need for adopting financial discipline and planning in the ‘income-earning’ age, especially for millennials.

How to deal with risk determination in a time of uncertainty

McClanahan, a certified financial planner, shared insights on the subject of risk determination in a pandemic such as this. Her words were, “Risk is all about how much you can afford to lose, and young people have a long period of time. They can take more risk, and ideally, in the long run, it is going to make a lot of money for them.”

McClanahan went on to explain that the amount of time you have before needing to use your money should drive portfolio allocation. If your money is tied to the short-term, meaning that you are approaching retirement age or you recently retired, you should be conservative and reduce the amount of risk you are exposed to. Younger investors who, on the other hand, are still at liberty to withstand market shifts should be more aggressive with their allocations.

Figuring out your risk tolerance is also important in this period. Investors react differently to a pandemic; some might be indifferent to the roller coaster happening at the moment, while others are contemplating whether or not they will be able to get through their retirement years. Gauge your tolerance appropriately in line with your timeline and goals.

According to Braxton, co-CEO of 2050 Wealth Partners, the way to understand your risk tolerance and know if you are investing right is to pass the sleep test. If you cannot sleep well at night, you may need to relook your investment allocation.

Risk tolerance in itself is not a static construct. It also changes with your age and goals. McClanahan suggests that investors always keep track of how much they could lose, especially when markets are rallying. Being conscious of how much you could lose, especially during the rally, will get you on the offense when the market dives. You would be ready for what is to come and thus, face it head-on.

Conclusion

To make the best of a pandemic investment-wise, talk to a wealth coach who understands your financial situation, can review your portfolio and work with you through the highs and lows, and suggest quality assets and direction.

At Quantum Zenith Securities, we have a team of well-trained professionals ready and willing to advise you or your company on the right path to take in these sorts of situations. A trial will convince you!

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