FINANCIAL WELLNESS IN A PANDEMIC

Covid-19 will not stay forever. We will get back to a normal life in a short while. We need to maintain financial wellness along with physical well-being.

Some of us will have a neat pile of cash with us, at that point of time

These are the funds held back because the investment scenario is so uncertain. It is the amount you have saved by staying at home.

It is the money you are now making a habit to save, because fear of exigencies has hit hard.

The big question now will be “Where do I invest this money?”

I hear stories about doctor couples wanting to quit jobs, because of the inherent danger involved. I hear stories about people reconsidering being in a job which necessitates international travel.

Many people in business are seeing losses, and will continue to see for some time.

Do you see your career as secure, or do you see uncertainty looming ahead?

EMERGENCY FUND FOR FINANCIAL WELLNESS

It sounds ironic, but you need water in home taps, even if it is raining outside. If you fall in the latter category of uncertainty, the first priority is to have cash equivalent to 6 months of maintenance expenditure in a highly liquid asset, like a savings account or flexi-deposit or liquid funds. Find an option which offers a good rate of interest along with safety. Stay away from co-operative banks.

You will not find yourself high and dry in unforeseen circumstances.

CHECK YOUR HEALTH INSURANCE

Read your health insurance policy and see what it covers. Consider buying an additional one, if the insurance your employer provides or what you already have is inadequate.

The topic has been covered in the blog at

https://www.moneygoalz.com/are-you-covered-for-covid19-risk/

Remember that insurance is not investment. It is just a safety cover to prevent a large outflow of funds later.

And yet, it is the most important part of physical and financial wellness in Covid times.

WHAT LIES AHEAD FOR THE ECONOMY IN 2020?

Covid-19 has taken its toll in terms of health, trust, stock market crash and anticipated fall in income in many sectors like aviation, hospitality, banking etc.

Tension between China and USA, and China and other countries will slow down economies the world over. 2020 being an election year in the USA adds to uncertainty.

It sounds negative, but the much-feared R-word is at the door – Recession.

HOW TO INVEST FOR FINANCIAL WELLNESS

The first step is to check the existing asset allocation. Where do you stand in terms of availability of funds for your financial goals? It could be purchase of an asset, a child’s education, money required to migrate abroad, impending retirement or fulfilment of a long-held dream like starting a business or NGO.

Use a flow chart or mind map or excel sheet to know where you stand.

Where are the reshuffles needed? How will you go about allocating or re-allocating funds to different asset classes in line with your financial goals.

ASSET CLASSES TO INVEST IN

1. GOLD

Gold appears to be shining brighter this year, despite fluctuating prices.

Moneycontrol validates the observation here

https://www.moneycontrol.com/news/business/commodities/gold-not-equities-likely-to-be-hot-in-2020-experts-say-increase-allocation-4788931.html

Historically, gold prices have been inversely proportional to other asset classes. So it is expected to perform well when the stock market is down. Investments should be in the form of bars and coins, not jewellery. A financial planner can advise you on Gold ETFs, if that interests you.

However, gold is an asset for the long term. It provides no returns till you decide to re-sell it.

Gold is a hedge against inflation. At any point of time, the money required to buy 10 grammes of gold is found equal to the monthly expenses of a middle class household. This is a broad observation, and variations in the pattern are possible.

Gold loans are being promoted, but one has to pay interest on the loan.

Gold deposits have been introduced to mobilise idle gold into the economy. Minimum deposit is 500 grams of pure gold. Returns are in the form of interest offered in the range of 0.5% – 0.6%. Interest can be drawn at predetermined intervals. On maturity, one has the choice to take it back in coins/bars of gold or equivalent amount in rupees.

2. MUTUAL FUNDS

All mutual funds are bleeding as of now. A common advice that emerges from different quarters is that of sticking to index funds that move with the stock index, and do not depend on smart fund management.

If your financial advisor suggests that you park money in MFs for short-term financial goals, it should be in the form of systematic investment plans or systematic transfer plans.

There are advisers who recommend investing lump sum in equity schemes or direct equity at this stage, expecting a boom following a recession. The recent example given is of the stock market boom in 2009-10. It depends on your risk appetite, the amount you can afford to play around with and your own conviction. There is no uniform rule for every one.

3. SMALL SAVINGS SCHEMES

The interest rates on small savings schemes may fall further. Some experts see it to as a burden on the exchequer. Political prudence and compulsions of the Covid19 economy keep the rates afloat for sometime.

One can choose schemes as per eligibility from Public Provident Fund (PPF) (7.1%), National Savings Certificates (6.8%), Senior Citizen Post Office Deposits (7.4%), Sukanya Samridhhi Yojana (7.6%) and Kisan Vikas Patra (6.9%).

4. BANK FIXED DEPOSITS

Despite the bad reputation a few banks have earned for the entire banking industry, IMO, banks well-chosen are still safer than the stock market. Do not put all your eggs in one basket. Continue your existing savings account going for sake of convenience, but spread fixed deposits in different banks and different holding patterns.

Banks have a certain degree of backing from the government, which stock markets do not have. Yet, it is a good idea to check credit ratings, capital adequacy ratio, percentage of NPAs, exposure to risky sectors or bankrupt companies. At the same time, remember that balance sheets can be manipulated and audit is not always flawless. Speak to the employees of the concerned bank or their competitors. It throws some light.

5. REAL ESTATE

Real estate as an investment is different from buying a property for personal use.

A few calculations will show you that rentals on residential property are often less than the returns from other sectors. Tax benefits are likely to disappear gradually. Commercial real estate shows a higher rate of success, so do certain micro-markets like Airoli near Mumbai, Bhiwadi near Gurgaon, Jaipur and a few others.