Financial Portfolio Adjustment Amid Coronavirus Pandemic

The COVID-19 outbreak has not only caused health panic but has also resulted in financial instability across the globe. The world economy has taken a downward plunge and investors are worried about the security of their investments. However, during this time, it is vital for people to understand the importance of maintaining composure and taking practical decisions. One such decision would be to make adjustments to their existing financial portfolio. Investors generally look for financial products that can provide long-term security and growth. But the market is extremely volatile, and not all financial instruments can be expected to yield returns, especially in times like these.

Here are some financial avenues that will most likely keep the invested money secure, along with offering growth opportunities:

Gold

Investing in gold can be a safe option because its prices have increased considerably over the past year. Amid market volatility, gold is a reliable investment instrument and should comprise 5-10% of the entire portfolio. There are several ways in which money can be invested in gold. Firstly, investors can opt for the conservative option of buying gold in the form of bars or coins. Gold jewellery can also be considered an investment. Secondly, individuals can also consider purchasing commodity-related mutual funds and exchange-traded funds (ETFs). These are more liquid in nature and offer better cost-saving options. These funds follow the movement of the gold price. Moreover, there is no transaction fee, storage cost, or insurance cost involved, unlike gold bullions. Each ETF is equivalent to a one-tenth ounce of gold. Thirdly, investors can consider the purchase of gold futures or options on gold ETFs. The last option is to invest in shares of companies involved in gold mining.

Stocks

Investment in stocks amid the COVID-19 pandemic can turn out to be fruitful only when one has money that can be invested over the long term. The stock market has been extremely volatile during the last couple of months. Investing for a longer period will allow an investor to absorb this volatility. Long-term commitment allows the invested money to eventually take its course towards profitability without daily interferences. Investors should also concentrate on the overall strength and growth possibilities of their investments. The daily movement of a company’s share price cannot be used to determine the probability of profitability.

Certificate of deposit (CD)

Majority of banks offer a CD, which is a kind of savings account. CDs are a great option for investment amid the market volatility caused by the Coronavirus scare. The Federal Deposit Insurance Corporation insures an investment up to $250,000 in a CD in case the bank becomes bankrupt. However, it is essential to note that a CD is a long-term investment option with a lock-in period of specified months or years. In the case of any withdrawals before the end of the lock-in period, the investor will be liable to pay the penalty equivalent to the interest earned on a few months. Furthermore, the Annual Percentage Yield (APY) provided on CDs is more than savings accounts. One can earn higher APYs by keeping their money for longer periods of time. Though APYs on CDs have also been affected by the COVID-19 pandemic, they are still 20 times higher than the national average APY of the savings account. Therefore, a higher APY and the security of investment makes CDs a lucrative instrument amid market instability.

Endowment policies

Endowment policies are also a secure avenue for investors seeking prevention from market insecurities, especially the kind that is prevailing with the outbreak of COVID-19. Several non-banking financial institutions (NBFIs) are offering endowment plans that are non-linked and non-participating. These plans involve annual investment and offer assured returns, thereby guaranteeing the security of the investors’ investment. The investors start receiving earnings from their investment after 10-12 years. The exact number of lock-in years differs across various providers. An endowment plan is a long-term investment option for those investors seeking secure financial products other than CDs.

Systematic investment plan (SIP)

SIPs involve investing a monthly sum of money into mutual funds, trading accounts, or retirement plans like the 401(k) account. The biggest advantage of SIPs is that the investment can begin with a very small amount. Investors with existing SIPs can benefit from the current bear market. The uncertainties prevailing in the stock market have led to alleviation in the net asset values (NAVs), and mutual fund units can be acquired at a low NAV now. This gives an edge to the investor to earn higher returns with dollar-cost averaging. As for new investors, putting funds in SIPs can be considerably beneficial for them in the long-run. Investors can benefit from dollar-cost averaging (DCA) with SIP since small amounts of regular investment can be used to create a strong financial portfolio over time. However, one must carry out a detailed assessment of the past performance and ratings of the mutual fund before investing.

Term life insurance plans

Term plans are for investors looking to secure the future interests of their family and loved ones. The need for this safety has evidently been increased amid the COVID-19 crisis that has left everyone vulnerable.  Although the thought of suffering from the disease may not be a pleasant one, it also cannot be ignored. It is vital to ensure that an individual’s family does not suffer from a financial setback in such trying times. Term plans are insurance plans that cover the long-term and day to day expenses of a household, including equated monthly instalments (EMIs) of ongoing loans, mortgage, children’s education, marriage, etc. These plans ensure that the family is financially stable even after the policy holder’s unfortunate demise. Several banks and NBFIs offer many cost-effective term plans. Thus, the investor is not forced to block any huge sum for family protection. In addition to this, there are tax benefits offered on the premium paid for a term plan.

Government saving and investment schemes

As far as secure investments are concerned, putting funds in savings and investment schemes that are backed by the federal government are a safe choice for investors. There are several financial instruments operated by the government like treasury bills, treasury notes, treasury bonds, floating rate notes, treasury inflation-protected securities, series EE and series I savings bonds, and the U.S. savings bonds. The primary purpose of these plans is to offer tax benefits to ease the tax burden on the investor and also provide prevention against inflation in some cases. These schemes offer a safe avenue for investment as they come with federal government assurance.

To sum it up

While it might be tough to rearrange a carefully planned financial portfolio, it is an important task that must be undertaken amid the COVID-19 outbreak. Adjustments not only ensure the safety of an individual’s investments but also the security of an investor’s family in case the person is affected by the Coronavirus and unable to make financial decisions.

Several financial instruments guarantee returns and offer long-term financial stability. You can take the assistance of financial advisors if you need any help with the revision of your investment portfolio and select the right avenues for you.