The unforgettable year of 2020 provided an ultimate playbook of investment lessons.
Simply put, investing refers to allocating money towards assets in the hope of making your future better. Investments are made to earn returns, which grows the amount invested to a higher sum. It is one of the most common ways to make one’s future better. By making investments, you are saving as well as accumulating a corpus for a rainy day.
Some of the common forms of investments include – Individual Stocks, Real Estate Investment Trusts (REITs), Global Bond Funds, Exchange Traded Fund (ETF), gold and crypto-currency.
The COVID-19 pandemic has changed the way people have been investing their money and dealing with their finances for several years. While panic and agitation prevail, investors seem to have become more mature now, than they were a decade ago.
Albert Einstein had once said, “In the middle of difficulty, lies opportunity”. The same stands true in case of the pandemic as lockdowns allowed many to determine ways to invest and manage finances better, which could be helpful even after the end of this pandemic, rather in the “new normal”.
But how can you invest smarter? Our pro tip is: be patient, stay in the game and refrain from letting the short-term volatility of the market cloud your vision.
In this backdrop, entailed below are the five easy ways that can help you in investing smartly during the pandemic:
1. Assess your risk
Risk assessment is the first aspect of planning your investments smartly. Unarguably, it is also the most important one. So, what is the easiest way to assess your risk? It has to be by analysing your financial health as well as your short-term and long-term needs. Then, based on your financial capability, cash outflow and future needs, you can choose your investment options.
An investor can apply two types of risk analysis when evaluating an investment – quantitative analysis and qualitative analysis. While a quantitative analysis of risk concentrates on building risk models and simulations that facilitate the user to assign numerical values to the risk, a qualitative analysis of risk is an analytical method that does not depend on numerical or mathematical analysis.
Here is a piece of information- While a stock’s past volatility does not guarantee future returns, in general, an investment with high volatility indicates a riskier investment.
2. Build the perfect portfolio
A balanced portfolio can help you sail smoothly to the other side with a big smile on your face and a safety net by your side. We will break this down for you- focus on four key elements while investing.
First, an emergency fund should be built. This money can be kept in the bank or as liquid funds and considered as a few months of living expenses. Second, think of investing for short term goals, for instance, a wedding or saving up for higher education. Investing in any short-term asset that suits your risk limits works, such as marketable securities, prepaid insurance, etc.
The third element can be investing for expenses you can foresee over the next few years, in equities or mutual funds. Lastly, investing for long-term goals such as retirement should be considered.
3. Follow a system, abide by your rules
One cannot debate much on the fact that rules and systems have the power to help you through both the calm and volatile times.
Amidst the ongoing pandemic, investors – both old and young –are worried about the uncertainty and lack of control surrounding stocks, and quite naturally so. But then, there are ways to gain command of an investment strategy. What is being insinuated here is that having a system for investing and following some rules can offer certainty and control over investments and your returns as well – to some extent.
These rules can be set around what kinds of stock you want to buy, how you evaluate its performance and the reasons you want to sell. The system would be when you are actually evaluating those rules, whether it is quarterly, annually, or some other time frame.
4. Seek quality advisors &assets
What do you do when you have a toothache? You usually meet a dentist and don’t seek other options — right? In the same way, meeting the right investment handlers is important.
Our penultimate tip is perhaps one of the most crucial and smart investing tips –work with people who genuinely live and breathe investments. High-quality financial advisors with proven success records can point you towards the right assets.
Besides, a wealth coach can not only understand your financial situation, but also review your portfolio and work with you through all the highs and lows.
5. Do not panic! Pessimism is never profitable
Some of us do tend to develop a grim outlook on life at the slightest hint of a rough patch approaching us. Especially times like these (the pandemic) happen to accentuate the pessimistic streak in people and they might think- “this is the next thing that is going to be the end of the world”. Well, here’s the good news – the ultimate apocalypse is not anywhere near, so fear not!
During the early days of the pandemic, a gamut of negative feelings like panic, pessimism, and fear manifested in a really interesting way, and they still continue to erupt in bouts. Some investors rushed to sell their investments incorrectly, and then went into cash and stayed financially paralyzed. They then ended up incurring losses and missed out on a lot of gain that poured in later.
Here’s our tip: invest steadily and incrementally and chances are high that you will prevail. Panic does not help one make smart decisions. The Oracle of Omaha – Warren Buffett – sold all his airline stocks, and some believe that today, there is a possibility that he regrets his move. But Buffett being Buffett, one smart move could turn the tables for him.
All in all, it takes courage and discipline to be a smart investor. The markets have proven year after year that while unprecedented global events sometimes have a short-term impact, in the long term, patience always wins.
One must remember that the stock market is going to have wild fluctuations over the course of your lifetime. What you should do is find solid companies with great management and strong competitive advantages, at a good price hopefully.
Stay apprised! Invest wise!