The Covid pandemic has raised questions around individuals’ current and future fiscal situation and security...
We have reached the sixth month since the advent of Covid 19. In January, the world came to know about the deadly Virus but the initial response was of ignoring the issue, and the feeling that this will be localized and eventually go away. Gradually the impact spread globally across continents and in March, the world recognized the impact and started taking drastic counter measures. The thrust was on saving lives. Now two months later, the financial impact and impact on livelihood is becoming a bigger worry. Many countries have opened up and with social distancing, restarted business. Governments globally and proactively started giving stimulus packages to businesses and cash to its people to tide away their immediate crisis. The crisis has raised questions around –
Retention of Jobs
Sustaining our MSME and SME business for entrepreneurs
Pensioners and their investments and securities
Investments in stock markets, any losses in stocks, mutual funds and investments
Identify Secure assets to invest for future, Gold making a comeback
Re-look at your situation on mortgages and the real estate market and sharp fall in real estate sales and prices
Situation of certain industries and their future like Aviation, Hospitality, Tourism and associated employments
Questions around healthcare facilities and why governments should focus and build this critical aspect of the economy
Advent of the Digital world being embraced by all age groups and strata of the society
New Ideas for Work from Home and thereby reduction of costs on Administrative work and offices
While the above are a few questions which have got asked, there are certain recommendations which need to be evaluated and questions asked by each one of us to ourselves on our current fiscal situations and security.
Some key among them are –
Create your own Social network and backups – For example, several people realized the importance to have their financial matters streamlined, have a Will or financial plan in place in case of any untimely death. Importance of creating Trustee structures – could be both – formal or informal, basically people who could step in and take care of children and families in case of any eventualities. While this is a good Hygiene factor and everyone should do it if they have people financially dependent on them, the Covid 19 event has made everyone sit up and take some action. It is important that everyone introduces this in all their financial planning measures which they wish to undertake to secure themselves and their families in the Covid crisis or any such events in the future.
Retirement planning – We have many pensioners and people who are dependent on their investments post retirement. Some of the investments over a period of time entered the stock market and Mutual funds and thereby were enjoying improved returns. However, the current crisis has impacted these returns and also eroded wealth in many cases. It is pertinent to understand that when we are young and working, investment in shares is viable as you stand to make higher returns and in case you lose money in the stock market you have the opportunity to make it up as you are still in employment. However, this is not the case in retirement investments where the possibility of additional income to recover these losses is restricted. Retirement planning at this stage will need revisiting their portfolios and lay a larger emphasis on secure investments with negligible possibility of errosion. This could have slightly lower returns but given the outlook by various governments and central banks for the next 12 -18 months, it is important that the retirement planning portfolio becomes zero risk and secured.
Planning for lay-offs, job losses and pay cuts –While many are still not impacted directly but this aspect should not be ignored. Given the international scenario, every employed person needs to plan and keep a safety kit of at least six months as back up to take care of this eventuality. At this stage it is important to note that it would help to remain frugal in spends and create this back up saving till you reach your targeted fund requirements. Credit card usage or outstandings should be closed immediately to avoid the burden of high interest costs. Similarly, if possible, closure of all mortgages should be planned. This could be either by possible re-payment or alternatively keeping a corpus ready of an equivalent amount in alternative investments. It is important to note that while governments have given moratoriums to pay the EMI on loans , the interest meter is still running and we should only defer repayments in case of a financial issue.
Where is the Money safe, are banks safe, Are Fixed Deposits safe –Different countries and banks have different security and insurance measures for your hard-earned money in the bank. For Example, in India, the Finance Minister in the budget 2020 has proposed to hike the bank deposit insurance in scheduled commercial banks to Rs. 5 lakh per depositor from the current Rs. 1 lakh. Currently, as per RBI guidelines, deposits with all commercial banks and co-operative banks are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Similarly, in USA, the Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures. As of 2020, the FDIC insures deposits up to $250,000 per depositor as long as the institution is a member firm. Given this background, we may need to have a split of funds between multiple banks to ensure the adequacy of cover in case banks are faced with any situations of insolvency and write-offs. This is a remote possibility but it is important to keep this in our minds while managing our banking.
Real estate investments and rental incomes – Some of us would have investments in more than one property and many of them would be given on rent. This could be in the residential sector or commercial and retail sector. There is a likelihood of leases not getting renewed and, in some cases, due to virtual office and work from home opportunities, the need to lease additional spaces may come down thereby impacting rates and also loss of rental incomes. It is important for us to weigh this aspect of our investment portfolio and in case the properties are bought with loans and then leased out, we may have to evaluate closure of loans and exits from properties, given the fact that in the near future the possibility of increasing real estate prices is low, re-jigging the asset portfolio and making it liquid may become critical.
Medical emergencies and Liquidity – All of us at some point or the other have experienced scenarios where not having liquid cash has come up as a huge constraint to managing finances. This is true, in the current environment. As mentioned earlier, having six months sustenance funds is important and more important is having them in a liquid form to tide away all exigencies which may arise. Having adequate insurance cover, both Medical and life insurance and re-jig the portfolio to exit illiquid assets like real estate etc. will need to be planned.
Gold investments – Our elders will now tell us how they always maintained that investments in Gold are always what will help us in a crisis. Maybe they were right and maybe Gold is still the most secure and also highly acceptable and liquid asset. It makes sense to have some percentage of your portfolio in gold. The format could be as per preference, could be Gold ETF’s or in physical format. Traditionally, Indians have a significant portion of investments in gold jewelry in which case it’s important to list down your holding and valuation and see it as a percentage of your wealth. If it is already a significant percentage, you may not need to add more to your gold investments. For others, they could evaluate the investments to make them more secure and liquid.
Overall the crisis has impacted everyone in the world and on some, the impacts have been harsher. Overall this crisis brings in requirement for all of us to revisit our portfolios and make ourselves more focused and robust to withstand any further anticipated impacts in the next 12-18 months due to the Covid 19 impact.