Moneycontrol PRO

COVID-19 impact on wealth creation: Top 4 lessons of 2020 that will help you in 2021

As we begin 2021 on new hopes and aspirations, it’s in our interest to instil the past year's lessons in our finances and investments for a better tomorrow.

January 16, 2021 / 09:15 AM IST
In India, two vaccines have gotten approval for use so far: Covishield and Covaxin.

In India, two vaccines have gotten approval for use so far: Covishield and Covaxin.

A once-in-a-generation pandemic that thwarted progress made over centuries gave nasty memories that will be hard to forget.

Having said that, the pandemic also brought forth certain key lessons imbibing which can not only aid you to be on a solid footing in 2021 but also in the years to come.

Though the virus curve has flattened largely with regulators across the globe approving vaccines, the threat still looms large.

Let’s dig deep into the key lessons that the bygone year has taught us inculcating which can help you stay on top of your finances in 2021.

Avoid Exiting Equity Investments Following Short-term Volatility

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

When markets officially entered into the bear phase late in March 2020, nose-diving by 40 percent in a matter of weeks, most investors pressed the panic button and exited their investments fearing further losses. While doing so, they converted notional losses into real ones.

However, those who displayed courage and remained patient with their investments made significant gains as markets rallied, giving a staggering 80 percent return since March. Benchmark indices have touched record highs since the last couple of months, and those who exited their investments must be feeling the pinch.

Hence, as far as equity investments are concerned, you must approach them with a long-term view and avoid knee-jerk reactions following short-term blips.

Always Keep the Emergency Corpus

Job losses, dropping business revenues, and delayed salaries derailed the household budget of most and it became a tall order to address everyday expenses. Those who had an emergency corpus in place found the going a little easier vis-à-vis those who didn’t.

For long financial planners and advisors have staunchly advocated the need for an emergency corpus in a portfolio equivalent to at least 6 months’ expenses. The pandemic only accentuated this belief.

Hence, it’s imperative that you build an emergency corpus that can take care of your expenses for a minimum of 6 to 8 months and help you stay afloat in the event of a crisis that may strike any time in any form.

While building this fund, ensure ease of access rather than chasing returns. You can rely on liquid funds and bank fixed deposits to do so. Also, keep some hard cash ready for immediate use.

Insurance is the Lynchpin of Personal Finance

While the need for insurance has always been felt, it took a pandemic to drive its real utility. Insurance hedges your dependents from financial insecurities arising in your absence and ensures they don’t end up compromising on their living standards and essential financial goals.

For protection needs, a term plan is your most trusted ally as it provides a large cover at a nominal premium. A pure term plan that has no maturity benefits is an ideal pick as it provides a substantial cover at an affordable price.

Your nominee receives the pay-out should something happens to you during the policy term. If you survive it, nothing is paid.

Equally essential is to opt for health insurance that prevents out-of-pocket expenses during a medical contingency.

There have been several cases where hospital bills have run into lakhs of rupees for critical COVID care and those who didn’t have insurance had to foot in for the costs from their pocket.

Health insurance not only safeguards your savings from depleting but also ensures funds are not a roadblock in receiving the best treatment possible.

Given the rise in medical inflation, it’s advisable to avail a family floater plan along with a super top-up plan. Compare different policies online before choosing and make sure you fill the proposal form correctly as any wrong information could lead to claim rejection.

Cut Discretionary Expenses

With liquidity being a major concern, those who managed to keep a tight lid on discretionary expenses found it a little easier to navigate choppy waters.

Managing these expenses is not that difficult provided you can curb your instant gratification instinct and make small changes in your lifestyle including canceling unused subscriptions, taking home-made food to the office, and cutting down on weekend parties.

Judicious use of credit cards also goes a long way in stemming these expenses that can severely dent your finances and push you towards a debt trap.

The Final Word

As we begin 2021 on new hopes and aspirations, it’s in our interest to instil the past year's lessons in our finances and investments for a better tomorrow.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Rahul Jain is the EVP at Edelweiss Wealth Management.
first published: Jan 16, 2021 09:15 am

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark