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Building financial immunity during the pandemic

Ever since the beginning of the COVID-19 outbreak, there’s been a gush of information about preventative measures one must adhere to, to remain safe. They are all simple and effective ways to keep the virus at bay. Something even children can follow with ease. One of the important do’s on that list being, building the immune system to stay strong. One’s immunity indeed plays a vital role here as that is what helps to keep the body’s natural defences up and fight any viruses, bacteria and parasites daily without severe complications. However, when we fail to properly take control of our systems, these natural defences weaken over time. The same analogy can be applied to our financial planning. Let us see how.

Very often these days, we come across this phrase, “We are all in this together.”. Yes, we most definitely are. The pandemic is very much an emergency, a critical one at that which the whole world is facing. It came unannounced. Nobody ever imagined what a blow this would be and nobody still knows how long it’s going to last or how much more damage it’s going to cause. Phew! We have our fingers crossed and hope no more. But the one thing that stands out is that while we are in this together, we are not in the same boat. Each one of us is in a different boat flowing through the same turbulent river. Some of us have lost our jobs, some of us are operating under pay cuts, some of us have lost loved ones and some others still have everything intact but are living fearfully every passing day. We’ve somehow adapted to all the new ways forced upon us by nature since the last six months.

As much as we’d like to have everything back in our control much sooner than one can imagine, there are still a whole lot of questions yet to be answered. However, there are some which need to be brought to the fore and spoken about just as openly as the other preventative measures. Building financial immunity is just that and equally important as maintaining physical immunity. Having an emergency fund is a marker of that among many other things. As we find ways to navigate through this crisis, the question on almost everyone’s mind has been how to ensure financial security for their family. There are two important approaches to think of – short term and long term. Short term would  involve your day-to-day affairs and long term would apply to investments made for different goals still  many years away.

Short term

  • Re-assess your budget If anything, the pandemic has made us all realize that we don’t need much to live a happy life. We can actually live well on the very basic and re-evaluate our needs vs. our wants. With restrictions on outings and travelling, we can re-jig our monthly budgets to allot a sufficient amount to necessities, be very mindful with our spending and ensure we save for a rainy day.
  • Don’t ignore your emergency The first point about saving for a rainy day brings us to continue working on that emergency fund. Now, more than ever given that the emergency has actually struck or may be looming around in one form or the other. You’re probably making use of it depending on your current situation. But if not, it’s important to keep maintaining it for any unforeseen circumstances.
  • Be practical about your helper It’s hard enough to work from home that we also have to take care of the cooking and cleaning of our house. Not having our regular helpers for extended periods of time isn’t easy on anyone. Whether to start letting them in or wait till things get better, is another confusing question. Paying them their salaries on time without actually having the services rendered is also not a feasible option for many in these times. But if it does come to that, paying them at least half their salaries (if not full), can be a temporary solution instead of letting them go completely. And if that too doesn’t seem like an option, at least pay them a small token amount to keep them afloat for a short period of time.
  • Beware of coronavirus scams Cyber crimes under the name of coronavirus are a threat in these times. Even if you decide to donate or invest somewhere with good intentions, ensure that the source is credible. Do your research, ask around, don’t transfer any money through unknown links directing you to enter your bank account/credit card details without having checked if the money is going to an authentic party.

Long term

  • Staying invested As far as possible, it’s best not to disturb any investments intended for the long term to accomplish bigger financial goals. The market is volatile and you may not be comfortable looking at prices of stocks crashing. But withdrawing your money now because of this fear might turn out to be an impulsive decision especially if you try to buy back when the market recovers. The prices are prone to be higher then. Seeking advice from your financial planning adviser is highly recommended if staying invested is not an option for you.
  • Re-balancing your portfolio If at all the first point isn’t viable for you, it would be beneficial to consider re-balancing your portfolio before you make any drastic decisions. Again, consulting your financial planning adviser could give you a clearer perspective and help you plan better. The role of diversification or asset allocation can’t be emphasized upon more than in the current times. Hence, it’s best to ensure that re-balancing involves a good mix of various investments.
  • Insurance is a must Life and health insurance should both be non-negotiable. After all, health and finances are tied in so closely. It would be unwise to not have these insurance policies in place. In fact, getting a critical illness insurance policy would provide a bigger safety net by staying one step ahead, in case of any unforeseen circumstances.
  • Pay attention to your retirement account In the midst of everything that you’re trying to set right in these times, it’s possible that you might ignore your retirement account. Ensure that you don’t do that. It’s also important that you do your best to not disturb that either if cash flow is an issue currently. A retirement account should not be mistaken for an emergency fund. Therefore, do you best to not quit it or exhaust it either.

The last several months have been testing times for each one of us. With the new normal, multitasking is redefined and anxiety levels have been at their peak. But we’ve got to remember that there are a few things that are still under our control. Taking good care of ourselves and being responsible citizens is of course, the most important one. And being cautious with our finances, understanding the do’s and dont’s about money management in these unprecedented times is even more crucial to tide through this pandemic. Safety, to a large extent today lends itself to being financially immune too. A positive mindset is another one not to be forgotten in this list. Whatever boat we might be sailing in, we will get through this together.

Stay safe!

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How to keep things on track during the pandemic?

A handy checklist for your reference.

DO’s

  • Increase liquidity – Enhance your emergency funds to double the amount
  • Reduce extra expenses – the lockdown is making us online shopaholics. The general tendency is such that the need for gratification is finding solace in spending online.
  • Use surplus time to build a financial plan
  • Take calculated risks
  • Take a health insurance and a term plan

DON’Ts

  • Take your job for granted
  • Break your emergency fund to trade in the stock markets for short term returns
  • Assume that endowment plans / LIC policies are sufficient life insurance
  • Think that all risks are bad and that one should not take any risk whatsoever
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5 Lessons of Financial Prosperity Inspired by Lord Ganesha

Lord Ganesha, also known as Ganpati is believed to be the God of wisdom, a symbol of happiness, prosperity, knowledge and remover of obstacles. Adored by his devotees, there is a lot of inspiration that we can take about financial planning from the Lord himself.

Here are 5 lessons of financial prosperity from Ganpati Bappa.

Listen out and loud 

The Lord’s big elephant ears signify how it’s important to have your ears wide open at all times, pay attention to all the information coming your way, absorb all the knowledge and filter out what’s not necessary. Lord Ganesha is also known to be worshiped for beginning new ventures. Therefore, by taking a cue from there, you can start saving and investing money early, ideally as soon as you begin to generate income. As investors, there can be an overload of knowledge and information that comes your way. However, making the right decisions at the right time with the help of sound knowledge and guidance of financial advisors, by listening to them carefully can be a big step forward in your financial planning journey.

 

Think big to achieve bigger

The Lord’s huge elephant head signifies that one should always think big. From a financial planning perspective, it’s important to identify goals and categorize your investments accordingly. Thinking big about your future is a way to secure it better, by knowing what you want to invest for and thereby identifying your short, medium and long term goals. Goals can be met when they are prioritized well. In order to do this, it’s also important to keep your thirst for financial knowledge alive. Lord Ganesha symbolizes wisdom and intellect, which gives us the inspiration to be financially literate and understand the various investment options that can be suitable for our goals and give us good returns in the short or long term, as planned by us. While thinking big, it’s also important to realize the magic of compounding which is earning interest over interest and generating more wealth over a longer period of time. Secure yourself by taking advantage of this and working towards the bigger picture.

 

Concentrate and stay focused

Although bestowed with a big head, the Lord has very small eyes which signify that in all the big plans that we take on, it’s very important to concentrate and be detail oriented. With attention to the minutest of details, this feature of the Lord inspires us to understand the nitty-gritty of our planned investments, the pros and cons involved in each of them and therefore, be mindful of how we plot this journey for ourselves. Even after making that commitment, it reminds us to stay focused and be consistent with it to ensure that we don’t deviate from our plans and disturb the financial planning process for ourselves. Not to forget, the focus also enables us to be protected and prepare ourselves for monetary turbulences, which should be paid just as much heed as we do to any of our other investments.

 

Trunk-like patience to adapt in all conditions

The Lord’s trunk symbolizes the virtue of patience that we must all possess as it’s unlikely that things always go as planned. Having a foresight towards this and ensuring that we can adapt to new circumstances as per the changes or new developments, is an inspiration for us to take. The long trunk also signifies that the Lord can sniff out danger or negativity, which is why he’s referred to as the remover of obstacles. This teaches us the lesson to be vigilant towards our investments and not be lured towards lucrative offers and those that promise anything big in a short span of time. To sense the unrealistic and frivolous nature of any such investments and steer away from it, being aware of market conditions and the risk involved in the investments that we choose to make, is an important lesson to bear in mind.

 

 

Strong tusk power to fork out bad investments

The Lord’s strong tusks are a reminder to us to have the strength to take the right decisions and eliminate any negative influences that there might be. Building your perceptions after critical analysis is a way to attain that sense and strength to fork out poorly performing investments that hold back the potential of the portfolio.

 

The lessons above lead to financial security in the future, well represented by the laddoo in the Lord’s hand which signifies that the fruit to patience, focus, perseverance and good thinking always results in something sweet. On this Ganesh Chaturthi, let us acknowledge Bappa’s lessons that we can follow for life and work towards a safer and wiser path of savings and investments. Best wishes from CAGRfunds to everyone on this auspicious occasion. Ganapati Bappa Morya.

 

 

 

 

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Financial Frenemies – what you need to know.

Friendship Day marks the celebration of the relationship we’ve shared with our friends, old and new. It’s a journey we cherish and hope to continue for a lifetime. Just as we trust these long lasting friendships to have our backs when we need them the most, there’s another critical aspect of our lives that we need to give a lot of thought to – our money management. Savings and investments are not habits that come naturally to everyone. These are lessons we learn along the way as we grow up, start earning and are told to take care of our finances. Yes, it’s for the very same reason that we make friends for – to have something of our own and more so, enough of it to fall back on when the need arises.

If you are new to financial planning and don’t understand how to invest, what to invest in and other related queries, it’s best to consult a financial planning advisor who can guide you well with this. While family members are advisors for life, it’s helpful to seek guidance from an expert who can provide clarity to you in your journey. Amongst the plethora of investment options available in the market, it’s important to know which ones suit you the most and invest accordingly. There are various choices which may seem very obvious or the most recommended however, it’s important to do your research and understand if they are really worth investing or consider other avenues.

It’s easy to fall prey to plans or people who promise high returns with low risks. While such plans do exist, they may not necessarily be real or lucrative offers in the first place. Speak Asia and Stock Guru are two such examples of dubious schemes in 2011 and 2012 respectively, wherein very high returns aka promising to double in a span of 6 months, proved to be a red flag in itself. Ankur Sachdeva from Delhi invested Rs. 11.6 lakhs in Stock Guru in 2012. He was initially skeptical and invested Rs. 2 lakhs in the scheme. When he received Rs. 40,000 back in the first month, he invested Rs. 10 lakhs more to never have got back anything in return. A very basic principle to bear in mind while investing in any scheme is to check if it has been verified by some regulatory authority such as SEBI. Reading the fine print is cumbersome in most cases so make sure to have a lot of questions for your advisor. Anything or anyone promising unbelievable returns in a short duration should ideally not be trusted. Anything that is too good to be true is never true.

Life insurance is another vehicle which is mistaken for investment because of its triple benefits of a cover for life, long term savings and tax benefits. Endowment plans are the most traditional and very often considered to be the safest forms of investments. However, these policies not only give sub-optimal returns of 4-6%, but also force the policyholder into a multi-year commitment. While there is a way out, which is to surrender the policy if you have paid the premiums for a minimum number of years, you are sure to face a loss when you do so. These investments not only prevent investing in other lucrative avenues but also don’t give returns which do justice to such long term commitments. Not to forget, very long lock-in periods which means that you could end up investing for as long as 20-30 years where the interest is only accumulated, not compounded.

As an investor, it’s also very important to be cautious of falling prey to trading. The thrill is a given with quick high returns that trading gives however, very often most of the investors have no idea of what business the company is in or why is it that the price of a stock is going up or down. Let us look at a simple scenario. Say for example Mr. A believes that the price of Stock X is likely to go up by 10% today and hence he buys at Rs. 100. X indeed rises to Rs. 110 and Mr. A sells it off to Mr. B who also buys it with a belief that the price will rise further. X further rises to Rs. 118 and Mr. B sells it off to Mr. C. Obviously, Mr. C also wants to make money and believes that the upward movement will continue. He therefore sells it off to Mr. D at Rs. 128. This continues till that moment when the cycle breaks. The last man standing ends up making a loss. As stated above, in this cycle, there is a high probability that none of the players have any idea why the price is behaving the way it is and even the fact that someone will eventually pay a price in anticipation of the price rising further. Trading is a risky activity and is under no circumstances a medium of creating wealth. While a lot of people have made money with trading, there is no guarantee that you will be one of them.

While there are several such financial frenemies out there that can misguide investors, it’s best to start with professional help and take things in your hands in a couple of years of learning the ropes. Our expert advice is to first identify your financial goals, investment horizon and risk appetite to know how, where and how much to invest. Mutual funds are a great way to start with through SIP as they can always be tailored to your needs whether, short, mid or long term. Having a mixed portfolio also ensures that not all your eggs are put in the same basket. After all, there is no greater wealth in this world than peace of mind. So, befriend the savings habit and trust us with all your financial planning needs. Wishing you all a happy & financially prudent friendship day!