Panic selling, no contingency money… How COVID taught lifelong financial lessons

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COVID-19 has been, beyond doubt, one of the most ravaging crises in the history of human civilisation. While the trails of devastation are well documented and talked about, they also hold crucial life lessons that prepare ourselves better for an encounter with such a black swan in future.

While the pandemic has given some introspection into the vagaries of life, it has also brought to the fore key investing lessons. Learning and practicing them in investments can go a long way in turning adversities into opportunities and be on a solid footing.

Managing Behaviour

With lockdowns and reduced income becoming the new world order, the pandemic forced people to manage their behaviour and delve deep into differentiating needs and wants. A lesson long professed by experts, most learnt it the hard way. With liquidity coming under pressure, expenses were restricted to essentials. Discretionary expenses, on the other hand, took a backseat.

The pandemic also dawned a new realisation for those who loved living life on credit. They realised it’s a fallacy to do so and how this attitude of theirs can land them in a soup and zoom financial stress. The contingency for cash drove a change in their attitude.

Also read | How the pandemic changed the investment preferences of millennials

Also, with uncertainty around life doing rounds, most people utilised the time to sort out essential documents related to insurance, investments, fixed deposits, and so on, to ensure their family is not left in the lurch in case of any untoward incident. People also reviewed nominees of investments and joint accounts to make sure the proceeds didn’t remain unclaimed.

Also read | How to make a solid estate plan during these pandemic times

The pandemic also put a stern test on concepts like YOLO (you only live once) and FOMO (fear of missing out). Concepts like YOLO which often leads most to go overboard and spend beyond their means, went out of the window. People were more concerned about the present and took measures to ensure they didn’t fall prey to the virus.

Also read | Lost loved ones to Covid-19? Here’s how you can track their assets and investments

Use Corrections to Lap Stocks at Attractive Valuations

Markets went into a tailspin when the World Health Organisation (WHO) declared COVID-19 as pandemic in March 2020. Gains made painstakingly over the years evaporated in no time. This prompted many to press the panic button and exit markets. However, things soon turned for good, and markets handsomely rewarded those who remained committed to their investments.

Markets witnessed a sharp recovery from April 2020, re-establishing the fact that they are driven by valuations. Stocks of good companies with sound fundamentals and business models were available at attractive valuations. Smart investors used this correction as an opportunity to add these stocks into their portfolios to augment wealth in the long run.

Notably, when markets nosedive, stocks of fundamentally strong companies also take a beating. However, this is a short-term phenomenon. They eventually bounce back and emerge as winners in the long run.

Also read | Market experts shares their secrets to tame market volatility in panic-induced times

Avoid Timing the Market

Time in the market is more important than timing the market. The pandemic reinforced this time-tested investing mantra. Many lost the opportunity to invest at the lower levels, which prevailed till September 2020.

They waited endlessly for the market to correct, which never happened. Timing the market proved futile in the end as a lot of these investors invested at very high levels. In the process, they missed out on the potential gains when markets scaled new highs, taking everyone by surprise.

Asset allocation was the unsuspected winner in the end. COVID-19 once again sealed the fact that asset allocation is only strategy that works across market cycles.

Be Emergency Ready

Things spiraled out of control within a matter of weeks after the pandemic. Faced with the possibility of job loss, pay cut, and unexpected medical expenses, people realised the importance of contingency funds and the feature of liquidity in investments. Events like the pandemic can derail even the soundest of financial plans and a contingency corpus acts as a godsend during such times.

It’s prudent to have six months’ expenses as a contingency fund. It’s essential to keep this corpus in instruments such as liquid funds that you can readily convert into cash. A crucial aspect of building an emergency corpus is ensuring capital safety. Avoid chasing returns while parking money for a contingency.

Life and Health Insurance are a Must

The bulkwark of a financial plan, it took a pandemic of this magnitude to finally usher the importance of insurance. India is a grossly underinsured country as highlighted by the findings of the Economic Survey 2021-2022.

According to the survey, life insurance penetration stood at merely 3.2 percent in 2020. Health insurance penetration too doesn’t paint a rosy picture. As per Niti Aayog, nearly 30 percent of India’s population is devoid of any health insurance.

Those who ignored these completely citing reasons like good health, family history of no disease and longevity, realised the importance of both these insurances, thanks to the pandemic. It also underscored the fact that people buy insurance out of fear, and not as a part of prudent financial planning.

Summing it Up

Every cloud has a silver lining and the pandemic is no different. Following these crucial investing lessons can hold investors in good stead and help them ride choppy waters with ease.