financial planning, importance of investing, investment options, types of investment, what is financial planning, investment plan, retirement planning, Mutual fund
As the world continues to struggle with the physical (health), financial, mental, and economic fallout due to the COVID-19 pandemic, several individuals have found a silver lining among this situation – this has served as a financial wake-up call for certain individuals. This article will lay out four financial lessons that can be learnt during this pandemic.
Here are a few financial lessons that can be learnt from the pandemic:
- Having an emergency corpus in place
One thing that the pandemic shouted time and again is the importance of having an emergency fund in place. Even individuals having regular income streams were not immune to income commotions and job loss. People all over the world either received a pay cut or worse lost their jobs. This can have several implications such as the inability to afford essential services and needs such as house, food, clothing, physical well-being etc. Thus, its necessary to have an emergency corpus for situations like this. As a thumb rule of investing, you must allocate at least six months of your living expenses towards emergency corpus. You may set aside greater funds basis your financial goals, personal and financial goals, risk appetite, etc. You can further invest these funds in liquid instruments such as liquid funds, savings scheme, etc. - Market losses need significantly higher returns to breakeven
While this concept is not new, new investors might be alien to this concept. This is also an important concept for those individuals nearing their retirement who have significantly shorter time periods to recover their losses. The goal over here is to avoid pointless losses in the first place. It is important to focus on investment strategies that give importance to risk-adjusted returns concept. In simple words, you must find a balance between the risk level you are willing to take for higher levels of potential returns associated with it. - Do not forget to rebalance your investment portfolio periodically
Investors who did not have a habit of rebalancing their portfolios on a regular basis realised that had a higher exposure to market swings than they intended. This resulted in these investors witnessing substantial losses than they would have had they rebalanced their portfolio regularly. Are you wondering why this can happen? Well, it’s simple. Over time, market volatility can disrupt your asset allocation strategy and throw them out of alignment with your investment horizon, financial goals, and risk profile. So, analyse your investment portfolio timely and evaluate the types of investments that are not serving their purpose. - Try to live a debt-free life
Millennials today often have the habit of living paycheque to paycheque. While this may sound tempting as you get to splurge your money on things that matter to you, but in the long run, this won’t be doing you any good. Instead, you must focus on saving a part of your income and investing in different type of investments basis your financial goals. You can invest with an aim to generate wealth, save tax, or preserve capital. Also, living debt-free will ensure that you do not spend most of your income towards high-interest debts such as credit cards, personal loans, etc.
You can use the above financial lessons to create a better financial plan that can help you get out of these unforeseen circumstances. Stay safe and keep investing. Happy investing!
