Global markets have been in a whirlpool for the past few days. On 27th February, the US market Dow Jones, saw a huge downfall of 1,200 points. India was already amidst the Yes Bank crisis when the market started falling. Sensex witnessed a downfall of over 1,000 points the same day. Investor wealth of over Rs.3.5 lakh crore was wiped out from the market by the end of February and it has only been worsening since. All this financial havoc can be attributed to the spread of coronavirus worldwide. As per reports, 114 countries have reported that 1,18,000 have contracted Covid-19, the disease caused by the virus, known as SARS-CoV2. Very recently, WHO declared that nearly 4,300 people have died. It’s been declared a pandemic after which a global recession is being feared.
The question is – What to do now? What can you do as an investor today that will help you in keeping your financial health in good shape? The first instinct is to run away from the market so as to avoid losses but that won’t do you any good. The moment you exit the market, you will transform theoretical losses into actual losses with no possibility of recovering any investment. Difficult times like these call for patience and restraint. You need to calm down and be wise about your next few steps in the market. 5 steps that will help you in coping with the current market scenario better are:
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1. Assessment of the whole picture
The first thing you can do today to ensure that you stay on top of the financial game amidst all the coronavirus scares is to assess your portfolio. In simpler terms, take a look at all the funds that you have invested in (basically, the asset allocation). Is it your portfolio equity dominated or debt dominated? Do you have gold funds in your portfolio? Has your risk profile changed over a period of years? If the market’s movement has changed your asset allocation substantially then you need to revert your asset allocation. This is your entry point into what can you do to take care of your financial health
2. What’s working for you?
A fund or a particular kind of portfolio could be working for someone, maybe your acquaintance or a family member but that does not make it a perfect fit for you. As you would know, the risk profile of a person has a huge impact on the kinds of fund he will end up having in his portfolio. A young person is more accepting of the risks of the market since he will have more time to recover from the volatility of the market. On the contrary, someone older will be inclined towards buying safer, less risky funds. It’s all about what’s working for you. Don’t just buy a fund because it’s the best performing fund for the week or the month, make the pick only if it’s actually adding to your story. Don’t blindly buy or sell funds because of the coronavirus panic, take time and assess the stakes before taking any decision.
3. Taking one step at a time towards your dream
Often when we are in the middle of the process we get busy with minute details, so much so that we lose sight of the bigger picture. Maybe your plan was to save a certain amount of money to buy a house by 2030, maybe it was to get your child into the best school next year, maybe early retirement is on the cards, it could be anything, big or small, but you need to have an end goal in mind when starting to invest. As per the plan, you need to build a portfolio that suits your end goal. That way, you can balance out the returns and risk ratio. This way, you can accelerate as well as reassess if your current profile suits your goal. It is all about making all your dreams come true, step by step, one day at a time.
4. An insurance for your portfolio
Yes, this one is a must. Coronavirus is dangerous not only for your physical well being but also your financial well being, which means it will be a great idea to protect your portfolio health. For overall well being of yourself and your family, get yourself a term insurance and for your portfolio health, get gold funds. It is not really a surprise, why gold funds act as a hedge in times of intense market turmoil. Data on the general market behaviour in times of crisis, shows an inverse relation between equity funds and safer funds (debt, gold). When the market is in a state of high volatility, a lot of people take out their money from equities (high risk) and invest in safer options like debt funds and gold funds. Having gold funds in your portfolio will keep it safe against volatility and balance. When equity falls, the prices of gold funds rise which ensures protection of your portfolio hence, insure your portfolio with gold funds.
5. Save for a rainy day
All this chaos in the economy has given all investors and even non-investors a major lesson. The lesson is to build yourself an emergency fund for times like these. The global economic slowdown will have consequences, very tangible changes even in small industries and households. It may as well lead to unemployment. This means it is a good idea to set a certain sum of money aside every month, for worse days. Ideally, an emergency fund should have enough money to sustain you for 6 months to 1 year.
It will be a good idea to do all this only after you have ensured that you’re physically fit. There is no doubt that physical health precedes everything. Here are a few steps that you can take to protect yourself against coronavirus:
Wash your hands frequently for hygiene.
Maintain at least 1 metre (3 feet) distance between yourself and anyone who is coughing or sneezing.
Avoid touching eyes, nose and mouth so as to stop the entry of the virus.
Make sure you cover your mouth and nose with a tissue (or your bent elbow) when you cough or sneeze. Then dispose of the used tissue immediately.
If you have fever, cough and difficulty breathing, seek medical care asap.
Finally, don’t panic. Mindfully practice all the measures above and stay safe. As the saying goes, this too shall pass :))