Earlier in February of 2018, I contributed a small case note with Cafemutual on ‘Peace of mind is the best gift you can give your clients’. You can click here to read this article.
This was relevant then, more so now during the ‘Wuhan virus pandemic’ and will be so for times to come.
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 investors. If this feat is achieved with greater degree of accuracy, surplus amount can be deployed across appropriate asset classes 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. The reverse also holds true when the markets rebound to life time highs and euphoria is more contagious and deadly than Covid. However, MFDs should not let their clients’ emotional biases drive their investment decisions. Remember, investors who ignored the market correction last year and continued their investment have witnessed handsome returns on their investment portfolios.
Disruptions such as pandemic, globalization, artificial intelligence, automation, cyber and conventional warfare are here to stay. Therefore, multi asset and multi market (domestic and overseas) strategies are here to stay.
For retail investor from the services sector, with a home loan liability, it is recommended to move their home loan to a home saver product which will help them in both reducing the loan burden and maintaining liquidity.
Home saver accounts give the borrower an option to deposit excess savings in an account linked to the home loan account. Account holders can withdraw from this account in case of emergency as it has overdraft facility.
One of my clients, who experienced an irregular inflow of cash during the first 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 needs to be reviewed and the cash flows recalibrated factoring for such disruptions in future too.
Finally, as the famous Isaac Newton once said “Truth is ever to be found in simplicity and not in the multiplicity and confusion of things.” The learnings for all - 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.
Dilip Rohidas Shenoy is founder and CEO of Money Tree Financials, Mumbai. The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
