Market learnings from the COVID pandemic
The Covid pandemic has taught us many things: how we should look at our health, savings, insurance, investments, estate planning, etc. This article will look at some of these learnings and focus specifically on market learnings from the Covid pandemic. Some of these include:
- Have an emergency fund
During the Covid pandemic, many people lost their jobs and thereby lost their source of income. In the case of some people, their salary was cut by up to 50%, or their salary was delayed. While people's income was lost, cut, or delayed, their expenses stayed the same. In the case of some people affected by Covid and were hospitalised, their expenses went up. During such times, an emergency fund can come to the rescue.
So, the first learning from the Covid pandemic is to always have an emergency fund. It is very useful for meeting unplanned or unexpected financial situations. Ideally, your emergency fund should be equivalent to 3-6 months of income.
2. Have an adequate amount of life insurance and health insurance
Many people who were their family’s bread earners lost their lives due to the Covid pandemic. Their families are now struggling for survival. Many more people got hospitalised due to Covid and had to pay huge hospital bills from their pockets. It wiped out their entire savings. Some people even had to take loans. Covid treatment costs pushed millions of people into poverty.
So, the second learning from the Covid pandemic is to have an adequate amount of life insurance cover for the family bread earners. You may go for a term life insurance plan. It can give you a big cover at a low cost. You should also purchase a health insurance cover for your entire family. In the event of your or any family member’s hospitalisation, the health insurance cover is useful for paying the hospitalisation bill.
3. Always continue with regular investments
In March 2020, when the Covid virus started spreading across the globe, including India, the Indian Government announced a national lockdown. During this time, many Governments across the globe announced national lockdowns. There was panic across the globe as no one knew to what extent the virus would spread and its health and economic implications.
As a result, stock markets across the globe collapsed. Many people panicked and sold their investments. However, during the remaining part of the year, there was stage-wise unlocking of the economy, and vaccines were rolled out. As a result, by the end of the year 2020, the stock markets not just recovered the losses during the early part of the year but went on to make new highs.
As seen in the above chart, during 2020, there was a big fall in the stock market in the initial part of the year. But during the latter part of the year, the recovery was even bigger than the fall, and eventually, the markets made a new high.
So, the third learning from the Covid pandemic is to always continue with your regular investments. During the earlier part of the year, people who sold in panic missed the big market gains during the latter part of the year. Throughout the year, people who continued with their regular SIPs (Systematic Investment Plans) got rewarded handsomely with huge returns.
4. Maintain appropriate asset allocation
The fourth learning from the Covid pandemic is to maintain appropriate asset allocation. An investor should have appropriate exposure to equity mutual funds, debt mutual funds, and gold per risk appetite. In 2020, when equities fell during the initial part of the year, gold gave one of the best returns in many years.
As seen in the above chart, gold started the year 2020 around levels of Rs. 43,700/10 grams. In August, it peaked at around Rs. 62,000/10 grams. By the end of the year, it cooled off little to close around levels of Rs. 55,500/10 grams. Thus, gold gave returns of around 27% in 2020, which was one of the best returns in many years.
During the period March–August 2020, when people’s equity portfolios were in recovery mode, during that time, gold prices rallied and supported people’s overall investment portfolios. Hence, you should always have appropriate asset allocation towards equity, debt, and gold so that if one asset class is not doing well, the others can make up for it.
5. Allocate some portion of your investments to international equity funds
In March 2020, stock markets all across the globe, including the US and India, fell sharply. However, the US Government quickly announced a stimulus package and other measures to cushion the economic impact of the Covid pandemic. As a result, the US stock markets recovered fairly quickly compared to the Indian stock markets and other global stock markets. At the end of 2020, the Nifty 50 Index delivered returns of 15%, and the S&P 500 Index delivered returns of 18.40%.
The S&P 500 Index recovered faster than the Nifty 50 Index and gave better returns. Also, in the last few years, the US markets have given better returns than the Indian markets. So, the fifth learning from the Covid pandemic is to allocate some portion of your investments to international equity funds. It is a way of diversifying country-specific risk and an opportunity to benefit from the rise in US stock markets.
Investing in mutual funds with Glide Invest App
The Covid pandemic has taught us the importance of having an emergency fund, having adequate life and health insurance, continuing with SIP investments, maintaining appropriate asset allocation, and investing in international equity funds. Whether you want to build an emergency fund or invest in international equity funds, you can do it through the Glide Invest App. You will get the recommendations for the best mutual fund schemes based on your risk profile. You will get advice on how to plan and systematically invest towards your financial goals.
With Glide Invest, you will get guidance for:
1. A personalised risk profile assessment
2. Identifying your financial goals
3. Appropriate asset allocation
4. Making a financial plan for each goal
5. Automating the financial plan
6. Review and analysis of your financial plan
7. Hand holding you till your financial goals are achieved
To start investing towards your financial goals, download the Glide Invest App from Google Play Store or Apple App Store and get started.