Earlier in February of 2018, I contributed a small case note on ‘Peace of mind is the best gift you can give your clients’. This was relevant then, more so now during the ‘Wuhan virus pandemic’ and will be so for times to come. What WE have witnessed in the last 2 years is an entire lifetime and going forward the world as we know, will be referred to with 2 different time lines – pre Covid and post Covid.
Through my 21 years working career, ‘how to identify the right time horizon for the monies to be invested’ continues to be a key challenge for any investor. If this feat is achieved with greater degree of accuracy then surpluses can be deployed across appropriate asset class vehicles depending on one’s risk appetite and future goals (short / medium and long term). But no amount of planning can prepare us when a pandemic of this magnitude strikes and leaves an aftermath in terms of job losses, reduction or loss of income, increased health care spending and irreplaceable loss of the life of dear ones.
In such scenarios, an investor even with ‘aggressive’ risk profile turns ‘risk averse’ as the need for alpha on return is replaced by safety of principal as managing Risk takes priority over managing Return. The reverse also holds true when the markets rebound to life time highs and euphoria is more contagious and deadly than Covid. There is also a greater degree of risk of over management which may lead to confusion and clouded decision making. Do not let your emotions get the better of you in investment related matters. For those who ignored the market correction last year, and continued investing, are today witness to real handsome returns on their portfolios.
Interestingly as per AMFI data, the domestic mutual fund industry grew from INR 23.53 Trillion in April 2020 to INR 32.43 Trillion in April 2021 (37.81% increase in assets.) The proportion of Equity assets also has risen to 42.4% of the industry assets.
Disruptions such as pandemic, globalization, artificial intelligence, automation, cyber and conventional warfare are here to stay. Therefore, a muti asset and mutli market (domestic and overseas) strategy also is here to stay.
For retail investor from the services sector, with a home loan liability, it is recommended to move your home loan to a home saver product which will help in both reducing the loan burden and maintaining liquidity (do no square off by pre-payment of liability). One of my clients, who experienced an irregular inflow of cash during the 1st wave, was able to sustain his expenses dipping into the surplus parked in home saver product. Also, cash will always be king, as it will help one invest more during a meaningful market correction. For other liabilities such as personal or vehicle loans where a saver product is not available, it is recommended to earmark and provision separately for a pre-closure if need arises.
For retail investors from the non-service sectors, depending on their nature of business / sectors, the working capital or contingency requirement need to be reviewed and recalibrate the cash flows factoring for such disruptions in future too.
Finally, as the famous Issac Newton once said “Truth is ever to be found in simplicity, and not in the multiplicity and confusion of things.” The learnings for all is that the one aspect in our lives which we perhaps have a greater degree of control is the “financial aspect”. Keep it simple and flexible and do not over complicate matters. Continue sleeping in peace (SIP) as a healthy mind leads to a healthy body.
Mask up, maintain hygiene and social distancing.
