If the last few weeks are anything to look at, the COVID-19 pandemic is not only a prelude to changing personal mindsets but also an overwhelming reformation in the global economic order. 'The New Normal' as it is being called, is going to be laced with newer work patterns, modified organizational policies and deeper corporate challenges.
The most recent crisis of a leading mutual fund unceremoniously terminating six of its debt mutual fund schemes, sent even the most care-free investor in a frenzy. In such a scenario, when market volatility is at an all-time high, rejigging one's investment portfolio to suit the demands of this 'new normal' is the need of the hour.
In a post-COVID-19 financial environment — where fears of a recession and stock market crash are constantly looming high over the head — a prudent investor should imperatively consider the below mentioned key essentials while designing a holistic and well diversified savings and investments portfolio.
Equity versus Debt: While mutual funds, equity and debt are considered the safest investments tools, the last few weeks have proven otherwise.
Young investors’ predominantly first time investors with a high risk appetite should contemplate having a healthy mix of equity vs debt funds in their portfolio.
Generally, the thumb rule of 60 percent equity and 40 percent debt is most advisable. This ratio can be re-arranged according to the age of the investor, where at an older age the percentage of debt funds to equity should be increased to insulate oneself from the risks of the stock market.
Further, investors who have suffered losses due to the COVID-19 related stock market fluctuations should start weeding out loss making scrips and instead invest in companies that appear bullish in the current business environment. This way, they may be able to get over a percentage of the damages occurred immediately.
Insurance: Insurance is a golden instrument for investments as well as emergencies. Along with the tax benefits it provides, it is also an important tool to hedge a person against any unforeseen circumstances.
Considering a global pandemic was not really a part of anybody’s plan, investing in a health insurance covering a sufficient amount and number of diseases is not only a wise bet, but an important decision to survive in the new world order.
Real Estate: Though this may sound intimidating to novice investors, investment in real estate or property can reap long term benefits. Real estate investment need not necessarily be a house. It can also be a share in commercial real estate, an investment in funds that invest in real estate companies or the recently introduced REITs.
An investment in property has the ability of generating a good future corpus through rental and mortgage, thus making it an important component of an investment portfolio.
Metals: Metals like gold are costly but valuable investments. The distinct value of gold investments are that they have high liquidity and inflation beating qualities. Not to forget, in a country like India, it is also a symbol of prestige, charm and opulence. Locking emergency funds in the form of raw gold, biscuits or coins is a good way to make money out of idle money. Gold also has the capability of being converted into cash almost immediately or considered useful as an underlying security.
Most importantly, gold as a security has an inverse relation to the stock market. Thus when the stock market volatility affects your equity investments, the appreciation in gold prices can help maintain the stability of your overall portfolio.
Cash in hand: This is the only element in a well-rounded investment portfolio which can derive no additional value than its worth. However, having said that, a prudent investor should always have a reasonable stock of idle cash to address short term or immediate liquidity needs. Though unlikely in the future, in the current scenario when the COVID-19 lockdown paralyzed the entire financial system in one go, it is this idle cash that emerged as king.
Hence, although digital payments and the seamlessness of the credit system are so well advertised, one must always keep a wad of notes handy for times when the internet and technology fails to keep pace with the speed of the world.
With the hustle and innovation that the modern world had promised, a pandemic like the COVID-19 was almost unlikely. It still happened. Hence, there are some lessons that each one must learn. Investors who are stock market enthusiasts, and wish to trade in equity should ensure that they alter the focal study of their target.
Along with profit projections and business revenues, what potential investors should also examine closely is the sustainability index of a company. Is the company equipped for a remote set up, can they address business as usual without an office infrastructure, what is the disaster management plan of the organization and how relevant or booming will the services offered by the target be in the future — these are questions that are going to define the value of a company in the future. Thus, becoming the key points that investors should have an eye for in the 'New Normal'.