Investing and Saving in Pandemic Times

Smart investing and saving strategies will help you get rich from nothing even in pandemic times.

The economic upheaval caused by the coronavirus pandemic has dramatically reshaped global markets, businesses and commerce. Businesses, small and large, have adapted to remote work or reduced their workforce. Governments have played a major role in temporarily stabilizing economic downturn. Inequality is on the rise.

What we are witnessing is not just a financial crisis. It is really a public health crisis. If you are engaged in financial planning, you may find this to be a particularly confusing and volatile market. However, there are always ways how to navigate a market.

You have to ask yourself what kinds of risk you can afford. Think of your  life cycle in terms of how much risk you can take, think of your personal risk tolerance.

With so much volatility in the market today, every investor and financial planner should also keep up-to-date with the latest changing news. There are many trusted sources supplying information on financial markets.

One can easily conclude that industries like tourism and air travel are in big trouble. The problem is determining how far the rot goes – if an airline fails, or many of them, what other industries will go down with it? In a highly interconnected world, the answers are not clear.

Central banks and governments will pump in money, and they will ease restrictions as soon as possible to get things back to work. It is a challenging time to consider putting money in the stock market (if you’re lucky enough to have some, and a job to boot), but some great companies are on sale in a huge way now. We can see, for example, that anything to do with the food or medicine or distribution systems is of critical importance. Given the fact that governments will print money to shove at anything the general population can’t live without, it is safe to assume those sectors will pull through. Same as natural gas and other industrially-critical materials – the whole climate change narrative has put aside for the time being.

With interest rates once again at historical lows, many investors who might otherwise have been content to continue holding fixed-income securities have sought to boost their rates of return by turning to stocks.  Stocks carry different risks than bonds, and investors who shift asset classes simply to replace their formerly high, stable bond cash flows may find themselves facing more volatility than they would like. It might lead to capital losses.

Determining a company’s valuation is necessarily a forward-looking exercise. Doing so using numbers obtained during a pandemic may lead to misleading results. One might argue that a firm’s pre-pandemic performance might be largely irrelevant now.

Many people who used to travel to work are saving money on transportation due to less commuting. Staying at home also allows you to save on food given that you do your own cooking. These past months have led many to prepare for a post-pandemic financial rebound. Some resolutions will include the following.

Trim non-essential recurring expenses. These include things like monthly subscriptions and gym memberships. List them. It’s possible you’ll find more than a couple you’ve either forgotten about or haven’t used in a while.

Re-finance an existing debt while interest rates are low. A mortgage, student loans or personal loans are all candidates for rate improvements. Perhaps even your car loan.

Saving and investing involve budgeting. Now this is the key to starting your own savings, pandemic or not. If your expenses exceed your income, then there’s no extra for savings or worse you’re short on budget—you’ve got to cut back on something. But if you do have some extra, remember the 20% rule on savings? List it down as an expense too. This way, your extra cash will become a ‘spend’ that you can’t use for anything else.

Although saving up greatly depends on one’s income, effort, discipline, and a whole lot of management are important elements of it too. It’s definitely challenging especially when you don’t have that much extra, but if you’re dead set on it, you’re sure to see the fruits of your work later on.

With the strict measures currently implemented to control the coronavirus pandemic and most retail outlets closed for the time being, some are finding themselves with a little more savings to keep on the side.

The world is now seeing a sudden shift from physical to digital in almost every aspect of people’s personal and professional lives. Businesses have ramped up their social media presence, while consumers are doing most of their transactions online, including their banking errands.

The emergence of digital banks is now able to bridge consumers towards this ‘new normal,’ now more than ever before. Imagine being able to open a savings account at the comfort of your home by just downloading the mobile app and completing the registration digitally.

Regular savers would tell you that keeping your money in a savings account isn’t the most ideal when you’re looking to grow your funds. This might be true if your bank’s interest rate on savings range from just 0.10% to 0.25% on a per annum (p.a.) basis. Negative interest rates in Europe make this even harder for Europeans.

Since the pandemic is putting people’s personal finances at risk, society’s behaviour towards saving and spending are ultimately evolving as well. To illustrate, even minor charges for interbank transactions will likely total to a big sum over time when you could have kept that amount in your savings instead. Hidden fees and other charges can hurt your bank account.

Spending on groceries rose during lockdown and remains higher than pre pandemic levels in most countries. This is not the case for restaurants, pubs, holidays and transport. One of the reasons why these persistent sectoral differences matter is the knock-on consequences for workers: for example, those in the still-struggling sectors are disproportionately low earners.

There has been a persistent shift in shopping and payment habits during the crisis, away from cash and towards online-only merchants. Declines in spending on goods and services that were substantially affected or shut down by lockdown might have led to forced savings.

Life is not just about investing, spending and saving.

Instead of shopping, read a book, listen to the radio or enjoy some gardening. Rather than going out to eat, cook for your family. To replace the gym and fitness classes, take a walk around the neighbourhood, visit a park or go for a run. All of these behaviours will help you develop good habits whether there’s a pandemic or not. Focusing on these free activities will not only help you now, but also in the future as you develop lasting habits that will make you happier, healthier and wealthier down the road. By breaking your shopping habit now, you can realise that happiness doesn’t have to come from swiping your credit card. Lasting happiness comes from pursuing your purpose, learning, exercising, appreciating your loved ones and enjoying art. Saving money right now also allows you more choices later on, as it gives you a back-up plan in case you need one.

A spending boom is required when the pandemic is over. We will get there.

Curious to read more about the stock market? Check out this essay to learn Inimitable Path’s thoughts on whether the stock market will crash.

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