COVID-19 3rd Wave: Protecting your money

During the second wave of COVID-19 there were surging cases of infection with deaths. Many states went under lockdown emulating the start of Covid 19 in 2020 to control the spread of infection and prevent deaths. Last year, when the pandemic struck and we were shut indoors, there was a heavy economic toll. Lost jobs and pay cuts tore many financial plans and broke investor confidence. So, what are the key learnings from that for the 3rd wave this time?

1. Emergency Funds and Insurance

Many of us realized the importance of an emergency fund. You need to have a corpus equal to a minimum of six months’ expenses including EMIs you may need to pay. This can help you ride out a period of job loss or interest income. START BUILDING IT NOW! If you are close to your financial goals, take some money off the table right away to build it.

I can’t emphasise the need to review your insurance covers enough. Spruce the life insurance cover up if required to ensure that your loved ones are well protected. And ensure that Covid is covered in your medical insurance policy to avoid erosion of your savings in case of any medical emergency. Do you know what to look out for in a medical insurance?

2. Markets are choppy, but you know better now

Hopefully, we are wiser investors this time around. Last year, the BSE Sensex fell 38% in March. Many investors panicked. They either stopped their SIPs, or withdrew their investments in a hurry.

Remember the equity markets are expected to be choppy for some time this year, and perhaps even next year, depending on how bad the COVID-19 situation gets. But falling markets also give you opportunities to make serious money, if you stay invested, and add more money when markets correct. Most important to remember is that all equity investments must be made for the long term with a 5 year time horizon.

3. Diversifying abroad

The COVID-19 pandemic has not affected all countries uniformly. You can derive the benefit of diversifying overseas. I recommend most clients to start with a small allocation to USA index funds and increase it over a period of time using SIPs. Continue to have some allocation to gold, around 5% of your portfolio as a hedge against such uncertain and turbulent times.

4. Careful with your spending

The lockdowns changed our spending patterns. Many cut down their expenditure drastically and even moved back to their older cities embracing work-from-home. We have surely realized how little we need to live and be happy. But online shopping to kill boredom, can lead to very unnecessary expenses, which hurt your finances in case of a job loss or a fall in income. Become aware of your spending habits and surely save more.

5. Reduce dependence on Loans

Though moratoriums have helped borrowers in financial trouble to some extent, remember that you are still liable to pay the accrued interest. It is actually a double whammy as the payout increases substantially over time. Pay your equated monthly installments (EMI) on time. If you have surplus money, then use some of it to pay down high-cost loans. But ensure that you have sufficient liquidity. In the worst-case scenario only, should you go for secured loans.

6. Buying that 2nd or 3rd Home

Avoid buying a property for investment purpose using a home loan just because the interest rates are low. But, switch your home loan in case you get better lower rate. Try to save on switching costs.

Real estate is a very illiquid asset and cannot be sold in a hurry and takes a long time. So only if your financial plan can support multiple homes, then go for it. If not , liquid assets are far better assets to manage certainty.