Managing finances during second Covid-19 wave

The second Covid-19 wave has hit us like a tsunami. Surprisingly, markets seem to be ignoring this catastrophe. Investors continue to ask me about dogecoin, SPACs, trading direct stocks, and what not! Not all these investors have their basics like emergency cash or are saving for retirement.

Take the case of Venkat, 32, who asked me about a derivative product being offered by his stockbroker, which is assuring a 20% monthly return.

He and his parents have invested some funds with this broker and are happy to get high returns. On enquiring further, I got to know that neither has he started saving for retirement and has Rs 3 lakh health cover only.

His parents too are covered under the office group health cover. Further, the parents have moved some of their fixed deposits in the derivative instrument on basis of the guaranteed returns but do not understand how the product works or the recourse available, in case the broker doesn’t pay up.

No one knows how long this wave will last and what will be the economic impact on our economy and therefore the effect on our finances. In these circumstances, individuals need to focus more on protecting their finances than making speculative bets on their investments.

Here are some steps to manage finances in the current situation.

1) Have a good amount of liquidity in the portfolio. I find investors choosing locked-in options like non-convertible debentures or capital-guaranteed insurance plans which have no liquidity. Have at least 6 months of emergency cash and ensure at least 30-40% is invested in instruments that can be redeemed easily, should the need arise.

2) Evaluate your family (including parents if they are dependent on you) life and health insurance. A family of 4 should have at least Rs 10-20 lakh health cover. If you do not have this, buy fresh covers at the earliest. Do not depend only on the employer-provided cover. It is not enough.

3) Protect retirement. The first investment to be stopped or withdrawn from is one for retirement. The employee provident fund is one such investment. Remember there is no loan at retirement and by exiting retirement investments, you are losing out on the biggest benefit – compounding over a long period of time. Invest for retirement before you invest in cryptocurrency or stocks!

4) Stick with known assets. I do not understand this obsession to try out something “new”.

Each time there is a new fad, I find investors jumping in without assessing the risk in the investment. I have even been trolled when I wrote against cryptocurrencies on social media. At times like this, tried and tested products work best. Even if it means lesser returns for a while.

5) Try to stay off macroeconomic predictions or doomsday theories which only make you take all the wrong decisions. While it is recommended to not stop investing for financial goals, stopping investing for some goals (other than retirement) in order to pay off debt could be assessed.

Finally, think positive & keep your finances safe much the way you are keeping yourself safe- by staying put and not taking undue risks.