COVID-19: Saving in the time of crisis
Hammered: Cash (or liquid funds in Mutual Fund parlance) gave negative returns, Yet-another-Bank collapsed, Equity Markets tanked, government securities were all over the place (catching yet other mutual fund managers by surprise and Gold lost its luster.
Not to mention the lockdown ensured the bottom fell out of the real asset market (including real estate). With the cacophony of trains, buses, people being replaced by the eerie silence and the sporadic wailing of a scurrying ambulance, does feel like the end of the world.
Data: Feelings aside, let’s look at some data: A CNN report on March 20 summarised the Chinese experience – 87% of the cases have recovered (theoretically they have immunity), 80% of those infected have shown mild symptoms.
However, that 13 % (most of whom are under treatment currently) are not numbers trifling. Elderly and those with pre-existing conditions like diabetes, cardiovascular disease, cancer or respiratory ailments, are particularly vulnerable.
Analysis: But this would also mean a) there is a significant problem b) the pathogen is highly contagious c) however, most people recover.
Question: what would signify the crises is over? A viable COVID-19 vaccine. But that’s likely a few months off and which leaves us with time to think about our monies and financial security while we hunker down in self-isolation.
The question I get asked most often is: is this a good time to invest. The second question is what should one do with their existing portfolio? Buy some more, sell, or shift into something else etc.
Action: Well, this dark cloud too had a silver lining: it gives us time to sort our portfolios, and align them to what we are looking for from our savings(Education, asset purchases, retirement, philanthropy) and the first step to that is appropriate asset allocation.
Align your investments with a portfolio risk you can bear. There are many ways of doing this: hire an advisor. This individual should not be selling you mutual funds, rather she should be helping you navigate the larger portfolio planning process and financial goals.
There is the also Do it yourself model – use all this time available to read up and taking advantage of the online courses as well as tools, plan your portfolio (what you must invest in and how much in each asset class/component).
Even if one were to use an advisor, it would be worthwhile understanding some basics which would lead to a more productive conversation with the said advisor.
Once we have what we want to invest in, we now must execute and therein lies the question – is this the right time?
And the simple answer is to buy into the slide as you don’t know where the bottom is. Asset prices are low as the markets down shutters, demand tapers (notwithstanding the toilet paper rush) and Companies will take some time to get with the new reality and offer corrected valuations.
Breaking your monies into bite-sized chunks invested opportunistically (or regularly) would be an intuitive strategy – should one want to trade; it would also be worthwhile setting stop losses and cash out levels.
Alternatively, there are platforms that can get this done for you – a hybrid model, one with or without an advisor where a low-cost ETF portfolio is selected which closely aligns with your requirement, and the system manages the investment as well as rebalancing or any reallocation should that be required.
It is also possible to invest in two of these to align the overall portfolio more closely with stated risk-return objectives.