"WHERE DO WE GO NOW?!" is a question I've personally asked myself, and I've heard plenty of people asking this recently. I work in the finance sector, and as you can guess, it's pandemonium. Sometimes I wonder whether people are concerned more about their health or their money. But I'm here to make sure we all take a step towards being healthy and wealthy and wise.
Are you ready? Okay, here goes:
Yes, it's a tough time for investments. And your mutual fund manager is going to say, "We are in unchartered waters". So, what do we do? Well, I wish there was a standard answer. I'm sure you have now been the victim of way too many WhatsApp forwards regarding this. No matter which specialist is telling you how to "fix it" in a 2-minute video, it's not going to work.
The reason is very simple. Money is like food. Everyone does their own thing with it. Even in your own family, you can't agree on eating the same type of food, can you imagine adopting a solution for money that was meant for someone else? It's like feeding Cerelac to your grandmother and then taking her insulin for yourself because naani isn't feeling better. Exactly. That's crazy.
It's the same thing with your money, isn't it? You've been on your own financial diet. What you spend on and what you save with has been fully customized so far. So why not make sure you know what's best for you when everything is so uncertain?
So, the first rule of investing at a time like this is – Do not assume that those WhatsApp videos are THE Mantra to follow. We are as a race predisposed to finding quick fixes for everything and discipline is generally not something that comes naturally to us. As you've already seen, even the most educated people have hoarded stuff they don't need and knocked-out your local grocery store like there is no tomorrow.
But there is a tomorrow. When the lockdown ends and the sun is shining brightly in your face on the street again, there will be a tomorrow.
That tomorrow depends on WHERE you are today.
(Physically STAY HOME till allowed out. Financially, here goes)
First, check on the retired people at home. Do they have a mutual fund portfolio that's bringing them a little extra money? Make sure they don't panic about it. Have them check with their financial advisor to see if the fund house allocation needs to change. You can also help them check out some senior citizen schemes at the post office. Trust me, if they're okay with the liquidity conditions, you should sign them up for it.
Now come the worries. Yup, those middle-aged folk who have no idea if they've done enough for their retirement. I'm talking about them. First, make sure that their life insurance is decent (by that I mean it's about 5x of their CTC). And get them to upgrade their health insurance like their life depends on it (it does, by the way). Does their health insurance cover loss of pay? Does it provide at least 25 lakh rupees worth of cover for each family member? The answers to these questions better be YES.
It's also not a great time for them to sell their equity mutual funds but let them consult their advisors about rebalancing it.
Now, let's turn to the most important family member- you. You read this far for your folks, didn't you? Clearly, you care.
Firstly, I want to talk about the moratorium that banks are offering. It might look like a 3-month break from paying EMIs, but it's nothing more than temporary relief. It won't do you much good. In fact, the 3 months' EMI that you're not paying ends up in your principal amount, and for the rest of your payment period, you'll end up paying way more than you signed up for. Get debt-free ASAP. You know by now that things can flip any time. So pay-off stuff while you still can.
And now, I'm going to tell you something that your mom has been telling you all this time. She was right. Increase your voluntary contribution to your provident fund as much as you can. The PPF is still a very good scheme returns-wise and should be a part of every portfolio.
If you are much younger have just started working, then this is again a very good opportunity to create an exposure into equity-based funds and stocks based on research in addition to paying off your EMI.
I could go on, but I think you are getting the broad drift.
But this is the most important thing – Create a Reserve Fund- Typically 3 months of your gross income or 6 months of expenses – whichever is higher. This amount ideally to be invested in liquid or very short-term debt options of Mutual Funds or Fixed Deposits depending on your advisor’s advice (not Google).
Your emergency fund is the foundation on which you'll build your wealth. So you know it's super-important.
If you want me to talk about anything specific, do leave me a comment.
Make it rain, my friend.