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Critical financial lessons to be learnt from Covid-19 pandemic 2.0

When the going gets tough, investor resilience can come from adopting a long-term approach, moderating expectations and avoiding quick-fix solutions

September 18, 2021 / 07:21 AM IST

Just when things appeared to be getting back on track earlier this year, the second wave of Covid-19 struck. And it hit mighty hard. While the authorities did their best to help people in distress, pandemic 2.0 threw up certain critical financial lessons.

These lessons can not only fortify one’s finances but also help to be better prepared should such a black swan event happen in the future. Let’s dig in and understand these lessons and see how they can be put into practice to be on a solid footing.

Markets Reward Patience

A dichotomy that baffles everyone is the bull run that the equity markets continue to enjoy even today even though the severity of the second Covid-19 wave far outweighed the first. The markets seemed immune to pandemic 2.0 and scaled new highs. Both the BSE Sensex and the Nifty 50 clocked huge gains, adding to investors’ wealth.

This holds a crucial lesson for those who want to dabble in equities but don’t have the patience to continue investing in this asset class with a long-term objective and fret at the hint of slightest volatility. When the markets crashed in March 2020, wiping out gains, most investors panicked, pressed the exit button, and turned their notional losses into real ones.

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However, those who stayed invested made huge gains and the markets continued to strengthen even when pandemic 2.0 wreaked havoc. Hence, it’s important to approach equity investments with a long-term outlook and remain patient.

Moderate Expectations

With the vaccination drive picking up pace, some may be drawn into a false sense of security, believing that the pandemic is all but over. However, this isn’t the case. There’s still some time to go before it ends and we must continue to observe safety protocols.

Similarly, though the equity markets have yielded meaty returns, a near-term correction can’t be ruled out. The markets appear to be overheated and there could be some near-term cooling. Hence, you should moderate the expectations from your equity portfolio. Having said that, continue with your systematic investment plans to nullify volatility and gain from rupee cost averaging.

A moderate outlook will help you better stomach any decline – should it happen – and help you stay on course with your investments.

Don’t Bank on Quick-fix Solutions

In the course of the pandemic, several quick-fix measures regarding dealing with the virus did the rounds. Needless to say, acting on such tips is an open invitation to disaster. Similarly, when the equity markets touched new highs, information flew thick and fast on entering and exiting the market.

Practically, even the most seasoned investor can’t predict market movements. Hence, it’s advisable to stick to the time-tested philosophy of spending more time in the market rather than timing it. The more time you spend in the market, the greater the chances of augmenting your gains.

The Final Word

As the effects of the second wave of the pandemic seem to ebb and the economy gets back on track, the markets are expected to scale further highs in the coming days. Fiscal prudence, coupled with disciplined investments, will help you on your path to financial prosperity and navigate volatility with ease.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before making any investment decisions.
Rahul Jain is the President & Head - Personal Wealth at Edelweiss Wealth Management.
first published: Sep 18, 2021 07:21 am

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