There’s a lot of uncertainty across the globe about how things will unfold in the months to come. The impact of this pandemic is difficult to predict. More so, since there isn’t a clear precedent for recovery from a global problem of this scale. The silver lining though for those willing to see it is that most of us finally have time. Now, while this does give us the luxury to binge-watch movies and TV shows – there is something more important we can do at this time. This is an opportune time to introspect and take decisive action to safeguard our own financial health.
Many are wondering how (and if at all) they should be investing during a pandemic while others are seeking wealth advice for the very first time in years. Similarly, for a lot of investors, this is a crucial time to adjust their portfolios. To check investments that have been giving them poor returns and also to ensure their portfolios are balanced overall.
I’d like to start off by saying that no one knows how the markets will behave – that has and will always be the case. In fact, you should practice some serious social distancing if anyone claims to know the future. None of us has a crystal ball but I do have answers to two key questions people are asking these days.
The first is, “Am I invested in good mutual funds?” One of the main things to focus on is the quality of funds an investor invests in. This is key to ensuring you’re not putting your money in funds that will erode your wealth instead of growing it. The only sure-shot way of doing this is to contact a wealth coach to first plan a perfect portfolio based on your life needs and personal risk profile. Tell them about your current portfolio and discuss your financial goals with them. This way they can then help assess the quality of your funds or suggest quality funds that suit your needs.
The second question that is gaining popularity these days is “Should I keep investing?” If you have a regular monthly income then there is no need to stop your SIPs now. This is the kind of time when stocks and mutual funds are real steals. That is, of course, assuming that the funds you are investing in are quality assets.
Also, a bonus item: Think of investing not just in India but across the world. Such geographical diversification can help hedge against fluctuations in the rupee and give you a piece of global leaders like Google, Apple, Amazon, etc. These are all top brands you know and love. More importantly, they have seen dips as well. You can explore the ‘US Equities’ option on the Cube Wealth app for this.
That said, we can do a lot to financially brace ourselves for whatever is going to come our way in the future. Here is the 5 bucket philosophy. There are 5 main buckets we need to create for ourselves:
1) Emergency Fund: First things first you need to have your emergency and protection fund buckets in place. Always keep 3 to 6 months worth of living expenses set aside in a liquid account. This is money that you will not touch unless there is an actual emergency (No, a trip to Bali does not qualify as an emergency!)
2) Protection: The next thing we need to ensure is that we have a simple term life insurance and great health insurance. Also, if you are a frequent traveler (who plans to travel once the lockdowns are revoked) you should consider getting overseas travel insurance as well. Similarly, if you’re a homeowner, then home insurance is crucial. These are the things that will give you and your family peace of mind.
3) Short Term Needs: Once you have peace of mind you can start preparing for your short term goals. These are expenses that are 3 months to 3 years out. Whether it’s an international trip you’ve been dying to go for, a course you wanted to take, membership to a fancy club, etc. The Cube Wealth app suggests funds that suit your time horizon and risk appetite for such goals. Many investors make a mistake by investing in equity market funds for these expenses – a strict no-no as this is too short a timeframe to invest in equities.
4) Medium Timeframe: On the same lines if you have slightly larger and expected goals such as a house down-payment, your child’s school fee, etc you can put them in this bucket. These are goals that are in the 3 to 5 years time frame. You can invest in mutual funds that will help you hit that target.
5) Long Term Thinking: This bucket is for big goals like your child’s college education, second home, retirement fund, etc. These are areas that are at least 5 years away, which means if you set out to fulfill these goals the Cube Wealth App will give you suggestions for long term investments that are aimed at such large goals. This is surprisingly ignored by many investors and they are too conservative in their investments, not realizing they have time on their side to help compound their wealth.
Taking this approach will help in a few key areas, for instance, first- it will ensure you don’t panic due to market fluctuations. Second, it will provide money for what you need and when you need it. Third, in the long term, this approach will help you grow your wealth and become rich.
As we as a world face this crisis, and global markets sway up and down dramatically, each of us can take out 60 minutes to get our personal finances humming smoothly forever.
by Satyen Kothari, Founder, and CEO, Cube Wealth