Wherever you are in the world, the pandemic and its impact on the global economy is dominating headlines. It’s likely dominating your life, too. Above all, we hope that you and your families are keeping well.
Clearly, this period is having a profound impact on the economic outlook. Managing your investments in times like these can be hard. That’s because investing is emotional, meaning that your heart is trying to tell your head to take actions that it shouldn’t.
Here are a few tips that can help you to better manage your money during these turbulent times.
Easy to say… harder to do.
If you’re worried about money, and if your income has been negatively affected, we hope that this is a bump in the road and that you will get back on your feet very soon. There might be initiatives that can help and that you can look into. Major Dubai and UAE banks are offering relief packages. If you have a loan, do check with your bank what are the measures in place to support. These can include revisited packages, reduction on fees, existing as well as new finance facilities…In alignment with the Government Economic Stimulus initiative, many government authorities also launched a series of initiatives (mainly fiscal) to address the situation for the next few months. What does that mean for you? It could be discounts and waivers on fees,
extensions for payments…
If you still have a secure income, this also can be seen as a great opportunity to save money – if you are still ok with creating fun at home. All of us are encouraged to stay at home as much as possible to help ‘flatten the curve’. Now more then ever, putting some money aside if you don’t have an emergency fund is crucial. You can look into creative ways to cut costs and hold on to any spare cash. One way is by looking into any online subscriptions you have that you can cancel and save on. It might be a small amount, but it can help.
If you are investing, to get through this downturn with minimal losses in your portfolio, you must remain calm. Given the headlines and the volatility in markets, this isn’t easy, but the worst thing you can do right now is panic. We have a webpage dedicated to the subject so investors can equip themselves with the right information to make informed decisions.
Panic can come in many forms. It can tell you to sell all your investments. Or it can lead you to bury your head in the sand and ignore the news and your finances altogether. Rather than panicking, it’s important that you keep calm and carry on.
That’s because panic is not a strategy. A better approach is to keep as informed as possible and think rationally about your financial future. From this position, you can begin to make some decisions about what actions you should take.
When we talk about investing, we always say that it comes after that cushion you keep aside as an emergency fund. An ‘emergency fund’ of cash can sustain you and your family in times of change. It also means that you don’t have to sell investments in order to generate capital for everyday expenses.
As a rule of thumb, aim to have 3 months worth of expenses in cash. This will give you the flexibility and security you need to cope with any unforeseen changes up ahead.
One problem right now is that we don’t yet know how long the effects of the crisis will be felt for. With that uncertainty, we need to think that we might need liquid cash in the future. So as part of your financial planning, always think about keeping some of your money in cash.
If you have a secure job, and have figured out your emergency fund, a good approach to investing is to have consistent contributions to your portfolio on a monthly basis. Of course, how much and when, depends on each personal financial situation. One of the best ways to do this is via a Systematic Investment Plan (SIP). A SIP is a financial planning tool that helps you to create wealth by investing small sums of money on a regular occurrence. In times of strife, a SIP is worth its weight in gold for two reasons.
First, your portfolio will enjoy the benefits of dollar cost averaging. It lessens the impact of stock market swings in turbulent times by investing your money on a scheduled basis. This means you get an average price. You can read more about the benefits of dollar cost averaging here.
Second, a SIP allows you to forget about investing. Once it’s set up, you don’t have to worry about the financial world. Sure, it pays to keep up to date with news, but your money won’t be affected as you’ll always get the average price. This is especially useful when markets are moving as violently as they have been in the past few weeks.
Studies suggest that If you have spare cash, now could be a good time to put it to work. In times of panic, financial markets usually overreact. This can create opportunities for investors who are lucky enough to be able to take a little risk.
Indeed, historical data shows that some of the best upswings in the market occur during a time of market volatility. It suggests that staying fully invested through the bear markets would lead to greater returns in the long run. That said, no one can predict market movements. Timing the market does not pay off.
As Matthew McConaughey says, every red light turns green. And that will be true of this latest period of uncertainty. It will pass. It is hard to do but investors should focus on the long term, looking beyond the headlines. Remember, markets tend to trend upwards over the long term. Markets are volatile, this is their nature. They also have been historically known to reward patience.
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All advice aside, we hope that at this difficult time that you, your family and friends are keeping safe and well. Remember, that we’re here to help, so if you’d like to discuss your investments or any element of the coronavirus, get in touch with us. We’d be delighted to chat.
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