Has COVID-19 Lockdown Changed Your Money Management Outlook

May 08, 2020

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The fight against the COVID-19 pandemic is one long battle the world is trying to win by conducting tests in research labs to develop a vaccine. Moreover, until we find a solution to control the virus, everyone is leading a stressful life during this lockdown because salaries have been deferred , jobs lost, and businesses have suffered.

Consequently, the purchasing power has dropped drastically for people are no longer spending money the way they used to, especially on discretionary items. Now they are making mindful choices in money management, ensuring that they can save for an untoward situation like the current pandemic lockdown.

The other day when I was waiting in a queue to buy groceries, I overheard this conversation. One man was telling the other one that his shop employees were asking him to pay their full salaries and he didn't know what to do because he had set funds aside for his children's school fees, his car EMI and other utility bills, plus the day to day expenses of feeding the family including his dog.

The second one narrated that he got a pay cut and is thankfully single but has to transfer money to his old parent's account. He added that the markets are down so he can't even think of redeeming his investments from there. However, some money saved in a bank FD is relieving him from extreme financial stress. He decided to save more and not spend money on non-essential items.

[Read: Factors To Look At While Investing In Bank FDs]

This is probably the general sentiment: People are looking at their investment portfolios to see if they can pull out some cash from it, how safe is their capital, and how can they save more.

Considering the ongoing situation of lockdown that has affected one-third of the world's population, which means labourers are not free to move neither across nor within the borders for they are stuck in between. The agricultural, industrial, or service sector reliant on migrant labour is temporarily afflicted, and probably permanently scarred.

Image source: Image by RoboAdvisor from Pixabay
 

As per the CMIE India's unemployment rate is at a record high of 27.1%. This has affected the economy which is being reflected in the India Services Business Activity Index. It fell to 5.4 in April, an "extreme decline" from 49.3 in March, IHS Markit said. A reading of less than 50 indicates a contraction in business activity.

Equity markets took a beating due to the poor quarterly results, albeit it is bottoming out. The states are now slowly easing out the lockdown, whose impact will prevail further for few quarters. Some people are also taking advantage of this situation to invest in a calculative manner to build wealth for the future.

[Read: How Should a Novice Approach Mutual Funds amidst COVID-19]

If you too are one of those looking out to invest for your future, take cognisance of investment time horizon, current financial situation, your investment risk to create an optimum asset allocation strategy to invest in various investment avenues(asset classes like gold, equity and debt).

Every asset carries certain level of risk, relative to the returns it provides. In order to mitigate the risk involved its best to diversify across all asset classes. The reason being all assets don't move in the same direction and at same time. Hence investing across various class helps to reduce risk and gain more.

[Read: 5 Valuable Money Management Lessons from the Coronavirus Pandemic]

Consider these important points to be a smart investor.

 

If you want to grow wealth and have built an essential emergency fund, don't sit on the sidelines and wait for conditions to improve in the markets to invest. Given the current circumstances of the unpredictability of the ending of the pandemic situation, the markets do have the potential to bounce back sharply once the conditions improve. There have been many instances where the spectators have missed swift bounce back rallies to regret later.

A few questions to ask yourself:

  • Am I investing in the right equity funds?

  • Is my investment portfolio healthy enough?

  • Can my portfolio withstand the market jitters?

If you nod a 'Yes' to these questions, then you need not worry. But if you have any doubts, you need to immediately get a health check-up of your portfolio.

If you are approaching your goal in the next few months or a year, you may surely consider shifting to safer avenues. But if your goal is multi-year ahead, you need not worry. Short term events like these should not have a bearing on your long term investment decision and goals.

As an investor, you should try and get rid of the bad holdings in your portfolio. Instead, focus on well managed high alpha generating funds. Some process-driven funds still have the ability to beat the markets under any conditions and can create significant alpha for investors.

We at PersonalFN have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020, even though the last few years have not been among the best for equity mutual funds.

Our Alpha Funds Report 2020 is one such service that aims to identify such high alpha generating funds. It has already helped hundreds of investors pick high potential funds that may benefit them with superior returns in the long run.

Do not miss our latest research findings. Get your access to this exclusive report, right here!

 

Warm Regards,
Aditi Murkute
Senior Writer

 

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