The last few weeks have been a turbulent roller coaster of a ride, and even the most astute and calm investors would have had stressful moments while their portfolio values gyrated violently.
Given this kind of unseen volatility, it is not uncommon to expect calls from customers during such times, wanting to discuss their portfolios and to share their concerns. There are some calls, though, startle me and force me to take a break.
A few days back, I got a call from a person wanting to invest some money since she had received a gift from her parents. She was a 46-year-old working woman, who reached me through a friend. And on diving deeper, I was quite taken aback to discover that she had no support system for retirement with absolutely no savings, nor had she thought about starting one. She seemed unconcerned on how she would fund her lifestyle during her retirement. Forget about retirement, she did not even have funds to take care of herself in an emergency scenario such as a loss-of-job for instance, which in today’s circumstances is not at all improbable.
Not factoring contingencies
And just so you think that this is a rare occurrence, and I am possibly over-reacting on the basis of this one experience, let me give you another example to illustrate my point that such cases are not rare at all.
Some months back, a long-lost friend got in touch with me. She was doing extremely well and had an enviable job. She called me out of the blue to check where she could invest her substantial bonus. As is the regular practice, I asked her about her family background, current investments, and future goals.
I could sense that she was a bit irritated that I wanted to understand so many details, just to tell her if it would be a good idea to invest in a house, apart from the place she currently stayed in. Nevertheless, she obliged me since we had a long history and she was comfortable sharing personal details with me.
I gathered that her husband had quit his job and was trying to set up something on his own, and his venture, while looking promising, did not generate note-worthy cash flows. Her children had finished graduation and were looking at enrolling further. She owned the house she stayed in and her other assets included some FDs (small amount, just enough to take care of 9 months’ expenses), and some policies which gave her a negligible life cover and some money back. She had no financial assets apart from these.
She was now willing to take a loan, use the bonus as down payment and buy a house in the hope that the price would go up and she would be able to rent it out and get some additional income in the future.
The long and short of it was she was very content and did not foresee a requirement for any major savings since things were going smoothly. When I asked her what her family’s retirement plan was, she was taken aback and said she had never given it a thought. She joked that at 47 she still had many years to go, and it had not sunk in that she would retire in a decade.
Planning for retirement
We discussed and agreed that taking a loan at this point would be a bad idea and she should invest her bonus as well as part of her monthly income towards her retirement. I was very satisfied that she had woken up to reality and would soon take action to correct the situation.
We had a follow-up discussion a couple of months later, and she said she was yet to action on the retirement plan and was hoping to get it done soon. We again spoke a few weeks back when we connected for something else, and I gradually asked how things were on her investments and she said in a very calm and confident manner that she was yet to take action on it and would do so soon.
Interactions such as these scare me and keep me awake at night, wondering what would happen to them. I do also realize though that such cases, counselling can only do that much and sometimes, only a hard landing sometimes serves the purpose of making them realize the risks of living without a financial safety net.
The purpose of sharing all this is not to paint a picture of gloom (thanks to COVID-19, we already have plenty of that), but rather to give a wake-up call in case you or someone you know is in a similar situation and has not woken up to the reality of retirement or job loss. Even 10 to 12 years of focused planning and investing will ensure you will be in a better position than you would be if you do not act. Wake up, smell the coffee and attack your financial planning needs with renewed vigour, now that you have the time to do so with work from home.(The writer is a Certified Financial Planner and Founder of Finwise Personal Finance Solutions)