Do You Need to Rejig Your Financial Plan Because of the COVID-19 Crisis?
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The global pandemic of COVID-19 has spiked volatility and given rise to several grave concerns. Its impact on the health and mental well-being of people is one side of it. The other equally serious implication is on the financial health of the economy. The world is facing a financial crisis for which no one was prepared. The falling value of stock markets, increasing deficits, mounting debts, loss of jobs, corporate cost-cutting, and industry-wide shutdowns are alarming. But the crucial question is that in such critical times, should you shuffle, stay put, or exit?
Here is what you can do to ensure that you sail through the COVID-19 crisis:
1. Assess your Portfolio
The COVID-19 pandemic has shrunk even the tyrant of economies globally and caused significant negative impact on the value of multiple assets and properties. The primary step to ensure a stable financial position amidst such a crisis is to conduct a thorough assessment of your portfolio. It helps to understand the types of assets you own, the duration of the portfolio, type of investments, and so on. Once the analysis is complete, you can make the required changes. If the maturity of your portfolio is due anytime soon, but there is a dip in its value, you could hold on to it or re-invest it, if possible. On the other hand, for investments such as mutual funds, a falling value can help you buy more units. It is also beneficial to diversify into different sectors and industries. As a result of the COVID-19 pandemic, some industries have been more badly hit than others. However, many sectors are also flourishing and can be a great source of investment. So, try to allocate assets in such a way that creates a balance between bad and good performers.
2. Know your Risk
The effect of the global coronavirus pandemic on the world economy is still unfolding. Up until now, the virus has shrunk even the mightiest of all economies and has had a considerable impact on the American monetary health too. The market is experiencing fluctuations like never before. The S&P 500, Dow Jones, and Nasdaq saw a 10% fall in merely two weeks between the end of February and the beginning of March. In such times, it is very critical to know the kind of financial risk you bear. Balancing your risk and reward strategies can help you here. You can pull out of risky investments and opt for assets that offer more stable returns. If you have more money in stocks that are consistently falling in value, you may choose to diversify into bonds that are currently being sold at a fair price but have stable long-term returns. However, diversification from risky to stable investments needs precise estimations and judgments.
3. Check your Savings
Even though the sources of income in the wake of the novel coronavirus have reduced, the expenditures continue to mount. This creates pressure on the pocket and might cause you to dip into your savings and spend beyond the normal limit. As per a survey, more than 62% of Americans are currently stressed about their savings and finances. Another study reported that more than 51% of Americans have already used their savings account or emergency funds. Moreover, with the declining value of assets and retirement accounts such as the 401(k) plan, savings are likely to suffer more. However, you can evaluate your expenditure and form a suitable budget so that you can avoid overdrawing from your savings accounts. Examining your budget regularly and making modifications to move towards your goal also helps. In addition to this, you can choose to automate your savings to eliminate the possibility of overspending.
4. Streamline Foreign Assets
The current situation of COVID-19 has impacted countries and economies all over the world and some more significantly than others. This is a good time to assess your foreign assets, if any, and seek suitable professional advice to streamline them. Moreover, you may have to fulfill some formalities if you want these assets to be passed on to your heirs. The procedure can be slightly overwhelming and complicated, given the complexity of rules and regulations that vary for each country. Familiarizing yourself with such rules beforehand can give you an advantage.
5. Plan for the Unexpected
A major drawback in most financial plans is that they assume that all conditions will remain favorable. However, the current COVID-19 pandemic has caused monetary shivers forcing people to reconsider this notion. Emergencies and urgencies require strategic planning. Changing your plans to make more room for emergency funds can be a savior in such circumstances. It can also help to buy an insurance policy if you do not already have one. If you already possess insurance it is advisable to re-evaluate your current needs and update the plan accordingly. In such vulnerable times, a good life insurance policy provides the much-needed financial stability to your family. You can make a note of the hardships that you face now and implement them in your plans going forward.
6. Create a Will
No one likes to think about the worst-case scenarios of the future. However, the overall impact of COVID-19 is still being ascertained, and with no cure in sight it is highly likely that the situation will toughen. Hence, you should try to brace yourself. This includes creating a will to ensure that your assets are distributed as desired. A will is a very important aspect of your financial plan and one which requires utmost consideration. The lack of a will may imply legal complications in your absence. This can also give the law the sole authority to decide who inherits your estate and in what portions.
7. Invest in the Future
A major component of a financial plan is investing for the future. Even though the market is highly volatile right now, it is still a great time to build wealth. For plans such as an individual retirement account (IRA), a 401(k) account, etc., the goal should be to remain stagnant and not withdraw the money. Keeping the assets in the market for as long as possible allows them to recover. Moreover, if you have some years left for retirement, you can tap on your risk appetite and consider growing your investments.
To Sum it Up
By far, the shock of COVID-19 is more severe as compared to the financial crisis of 2007–08. Yet the impact of the novel coronavirus is still unraveling in multiple spheres and its downturn is expected to last for several years to come. As the world waits for the curve to flatten and lives to resume normalcy, the end is still not known. Hence, it is recommended to be armed with a financial plan that is strong and flexible. For advice on how to tackle the worst of the COVID-19 pandemic, you can seek professional help from financial advisors.