In times of such global anxiety as unleashed by the Coronavirus, it is vital for people to secure themselves financially
The world is facing a pandemic, the kind of which we have not seen in recent history. The Coronavirus, which began in Wuhan, China, has now hit over 145 countries, with over 188,433 confirmed cases globally and around 7,500 deaths. Of this, China, Italy, Iran and Spain have reported the highest number of cases and casualties. Naturally, productivity levels have come down drastically with China, the hotbed of the Coronavirus reporting a fall of 13.5 per cent in its factory activity. As far as American economic data is concerned, the manufacturing activity in New York State also fell to its lowest level since 2009. Similarly, stock markets have also plummeted worldwide despite major Central banks offering lifelines in the form of rate cuts. The Dow Jones, reacting to US President Donald Trump’s comments regarding a “possible recession” tanked about 13 per cent on March 16, with London’s Financial Times Stock Exchange along with other major European markets recording a four per cent slide. Indian stock markets have also sunk due to panic selling. The Sensex and the Nifty broke the lower circuit this week when both indices fell 10 per cent each, immediately after the bourses opened. Given the ongoing global chaos and uncertainty, it is not possible to predict the movement of stock markets as this fall worldwide does not have any precedent. No one knows how long the Coronavirus epidemic will continue. In times of such global anxiety it is vital for people to secure themselves financially. Here are some ways to do so.
Do not overreact and sell in panic: It is generally seen that investors are not rational in their outlook, follow a herd mentality and fall prey to panic selling. It is important to be fully aware of the natural cognitive and emotional bias that we may be experiencing and overcome it. Investors must rationalise, based on technicality. Generally, the stocks always move upwards in the long-term, although there can be short-term downturns. However, there could be times when selling becomes necessary when the fundamentals change drastically. So, although it is too early to panic and sell our investments in the stock markets, taking a U-turn and selling when the fundamentals of the economy or the business environment are changing, could be prudent. But is it a good time to buy? Nobody knows what is the bottom of this market. So any risk-taking individual can start investing in a proportion of funds over time. Set up a weekly Systematic Investment Plan (SIP) of the amount you are comfortable with and try not to panic if the markets fall further during this time. In this way, an investor with high risk tolerance can take advantage of rupee cost averaging.
Emergency funds and cash in hand: Although investments in stock markets and other instruments are an important way of achieving financial goals, it is important to create an emergency fund if you do not have one already. Investors can also think of enhancing their existing emergency funds as it provides the required cushion and peace of mind to deal with uncertainties. It is advisable to move some investments from the stock markets and fixed saving instruments into saving accounts to meet any untoward expenses. With schools, colleges, malls, organisations and places of worship shutting down, there could be a possibility of banks closing down for a brief period in the future. So keeping extra cash in hand and at a reasonably safe place, is advisable.
Safeguard your job: Although many people have started to work from home already and many may follow soon, this is the time for people to toil hard for the benefit of the organisation they work for. It is important to realise that in these times of economic upheaval and the current global turmoil due to the pandemic, you are lucky to have a job that can pay your bills. It is a very difficult time for freelancers, the aviation and tourism sector and for those who earn their living through the MICE (Meetings, Incentives, Conferences and Exhibitions) industry and so on. So, work hard to safeguard your job and plan your finances carefully to help you tide over the present crisis.
Cut expenses and look for opportunities to save: It is practical to look at all opportunities to save, since most of the social outings like pubbing, clubbing, eating out, watching movies and shopping have become out of bounds. This is a good time to relax and reflect on recent purchases and contemplate on unnecessary expenses that can be curbed in the future, too. It is also important to halt any expenditure that requires high cash outlay for some time and see how the situation changes.
Kickstart emergency plans: Many of us might have invested in the stock markets for our childrens’ higher education or marriage expenses and so on. For such immediate needs, which cannot wait for the stock markets to stop falling, stabilise and then start their upward journey, a “Plan B” should be worked out at the earliest.
The World Health Organisation (WHO) has declared Covid-19 as a global pandemic as it has spread worldwide and affected our lives, social norms and economic parameters. However, as individual investors, we should resist the temptation to panic and think rationally regarding our investments. With some smart planning and handy emergency funds, it is possible to tide over these troubled times. Remember the old adage, “Health is wealth.” So, first take care of your health and then focus on your wealth.
(The writer is Associate Professor, Amity University, Noida)
