Ways To Get Your Finances In Order During The Lockdown.

Ways To Get Your Finances In Order During The Lockdown.

A month ago, the crash in equities was the deepest. Over decades, one has seen the equity market do some really weird things, but the rise in stock prices in April is probably the weirdest of them all. 

It would be pointless to state that the March crash was overdone, and thus, the April was actually kind of due. And given how things are now progressing on the economic scenario, it is safe to confidently state that we are in unfamiliar waters, and everyone from the next-door business to the big players is suffering in the present economy. 

The economical world has now become a contradiction of sorts in its way too. Earlier, financial advisors were talking about how many big businesses are reasonably priced now on the equity market. Therefore, investors who have running SIPs and do not need money for some time now should continue to operate their SIPs and keep investing.

On the other hand, it seems that what is virtuous now is to not do anything. Take the example of the great Charlie Munger for instance. Despite having $125 billion worth of cash and assets at rock bottom prices, Buffett and Munger are still sitting, since nobody now knows what is going to happen. 

So what is it that one should be doing in these times? There are some categories of actions that do not fit in the do-nothing framework in the quarantine, but these are largely specific. Continuing to invest in SIPs in equity funds is one of them. In this, not taking any action means to let the SIPs run. And the reason why SIPs are an exception here is that it is exactly in these times that SIPs set you up for big future gains. The entire logic behind them is that when equity prices go down and out, and NAVs are low; a fixed monthly amount can get you a lot more units. When prices recover, you tend to get some outsized gains. On the other hand, when markets crash and you stop SIPs, you get the exact opposite, so don’t do that. 

There is one more class of actions that makes sense in the current scenario. This is to make corrections in the investing mistakes that you have made in the past. Take for example how you might have too much money in equity funds. You might need some of this money shortly, let us say a year. Or perhaps you have neglected to keep any emergency funds in hand. Or maybe even the general sense of crisis might have made you realize how you have slipped up on term insurance or health insurance. You must address these problems sooner than later, even if this means some disruption to your long term plans. 

In the last few weeks, a lot of people have also realized the importance of gradual exit from equity. Savers have saved and grown money over the years in equity funds to meet expenses that they had foreseen for the coming year. The prudent thing would have been to start an SWP two to three years in advance so that there are no surprises at the last moment. However, if you failed to do this and have money in equity funds for the next few years, now is perhaps a good time to redeem it.  

Consider yourself lucky to have had this bump in April, and don’t push matters further. The only money that is not immediately needed should be invested in equity and equity funds.