Personal Finance Mistakes You Should Avoid in COVID-19 Era

 

Covid-19 has numerous degrees of impact on countries, global economies, and individuals. In reaction to the crisis, authorities and governments have taken a variety of steps to ensure that their respective economies survive.

Governments all around the world are now moving toward progressive economic unlocking as the importance of preserving livelihood has become more important than slowing the spread of COVID-19.

Unusual circumstances like these might lead to rash decisions, some of which may result in sub-optimal outcomes; thus, investors should attempt to avoid the following blunders:

1. Insufficient rainy-day fund:

Having an emergency fund is crucial in the present pandemic environment, which is fraught with uncertainty about businesses and job security. It is a good idea to set aside 3 to 6 months' worth of spending as an emergency fund and invest it in highly liquid assets like liquid funds or fixed deposits.

It would be foolish to deposit all your savings into financial products with lock-in periods in the future.

2. Taking your focus away from budgeting: 

To retain appropriate liquidity and reserves, it would be advisable to postpone significant discretionary spending until things return to normal. Spend money on big ticket items only if necessary, during online sales from e-commerce companies.

3. Changing your investments from undervalued asset classes to others with higher prices: 

The best gains are always made while investing in bear markets, according to history. Investors, on the other hand, have exhibited a proclivity towards withdrawing money from these asset classes and reinvesting it in less bruised or safe asset classes. As a result of such behaviour, investors miss out on any potential gains once the dust settles. It is critical to stick to your long-term asset allocation plan.

4. Stopping your SIPs/investments: 

After seeing a bear market in equities, most investors are scared to put additional money into beaten-down strategies. Rather than anticipating the markets, investors should stick to their established financial plan.

5. Not re-evaluating your financial strategy: 

COVID-19 pandemic allow you to revaluate your risk tolerance and rebalance your portfolio to the optimal levels. Risk evaluations performed on sunny days are more likely to be incorrect, owing to overestimation of risk appetite.

6. Not consulting a financial expert: 

Now this is the time to consult with a financial advisor about your financial planning and keep to it regularly. Any quick decisions made without such guidance could damage the financial health of your portfolio.

The Bottom Line (Abstract)

In conclusion, it is recommended to create your own Investment Blueprint, which is a vision document that lays out the philosophy, framework, and process of managing your portfolio, while also attempting to understand the goal of investment, horizon, liquidity, and risk appetite in total.

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