5 Financial Lessons from COVID 19

Benjamin Disraeli once famously observed that there is no education like adversity. His words of wisdom ring true today, more than ever. As the nation grapples with the devastating impact of COVID 19 and financial markets gyrate to the tune of incoming news flows, a number of valuable financial lessons come to the fore. Here are five important ones.

Adequate Health Insurance is a must

Many of us rely on our company-provided Mediclaim policies to fund our healthcare emergencies. What we fail to account for, though, is the fact that an unexpected job loss could leave our families without health insurance protection almost overnight. Also, worth considering is the fact that COVID 19 treatment costs have run into several lakhs for many affected patients. The crisis has certainly taught us the importance of having an optimal quantum of high-quality health insurance coverage in place, notwithstanding your company provided Mediclaim.

Timing the market is futile

When the NIFTY sank to sub-8000 levels in March and sentiment was at its lowest point, doomsday predictions were a dime a dozen. Investors made a collective beeline for the redemption button and exited equities en masse. However, markets have since staged a smart recovery, and are showing definitive signs of strength - even rising marginally yesterday, after the Dow Jones Industrial Average cracked 6% the previous evening! The takeaway here is the well-worn fact that market timing is impossible, and so should therefore not be attempted. The only way to create long term wealth from financial markets is to follow a contrarian approach by accumulating equities when fear is at its highest point, and to sit through the rough rides thereafter.

An Emergency Fund is vital

If there’s one Financial lesson that the COVID-19 crisis has taught us, it’s the critical importance of building a savings pool that can be used to ride out a prolonged contingency. An emergency fund is the most basic pillar of sound financial health. Make sure you’re putting away money consistently into a financial instrument that is low risk in nature and gives you the comfort of easy and immediate access to capital. Follow the thumb rule of having 6 to 12 months of fixed monthly expenses stashed away at all times – you never know when you might need it, as emergencies don't come announced.

Discipline makes a world of difference

The most effective antidote to the host of behavioural fallacies that plague our day to day investment decisions, is to follow a disciplined approach. In fact, this argument carries even more weight during volatile times such as these. Investing via SIP’s (Systematic Investment Plans) without giving a second thought to market levels or the unending stream of good and bad news flows that inundate our minds on a daily basis, can prove extremely effective. Take the example of a SIP of Rs. 10,000 per month in ICICI Prudential Small Cap Fund. When markets were at their recent highs in February this year, an investor in this fund would have purchased 368 units at a NAV of Rs. 27.11 on 3rd February. Post the dramatic capitulation in March, the same Rs. 10,000 would have fetched 578 units for the investor on 3rd April – that’s 57% more units for the same rupee cost! In the long run, such automatic averaging would go a long way in ensuring fantastic portfolio returns. Stay disciplined.

Unadvised Investing can be injurious to your portfolio!

Needless to say, unadvised investors who used DIY platforms or went down the direct plan route in a hapless bid to save on investment costs have had a harrowing time of late. Without the valuable support of a “coach” in the form of a qualified Financial Advisor, many of them have taken regrettable investment decisions in the past couple of months that will have a long-term ramifications on their future wealth creation. For best results, seek the support of an experienced and proven Financial Advisor who will be acting in your interest at all times. COVID or no COVID, flying solo can prove dangerous to your Financial Health!