Managing your Finances in the time of Corona Virus

As the world reels under the fear and economic standstill created by the Pandemic – Corona Virus, its important to take stock of a few basic things related to your money and personal finances. 

Corona Virus has been labelled as a “Black Swan” event, meaning it’s a rare event, unthinkable and unimagined just like its rare to see a Black Swan. A Black swan event is a low probability but high impact event which rattles financial markets and world economy, throwing normal life out of gear. 

While you are sitting in your homes due to the “Public Curfew” imposed across the country, you have enough time to take stock of the following things and ensure that you emerge stronger once the situation normalises. 

  1. Take stock of your Emergency fund – While creating the financial plan, most investors keep asking if there is a need to create the emergency fund and maintain the funds in low return quick liquidity assets rather than invest in high return and risk based assets. I think the present situation provides the answer to those questions. Presently when the stock markets are falling, wiping out your profits and part of your capital too, most investors can take solace from the fact that the emergency fund is intact as it was meant to be invested in safe, fixed return instruments and use it only in the times of crisis like these when you are not sure if you will get your salary next month or if you will have your job a couple of months down the line. Hope that you have maintained at least 6 months of your expenses in liquid form. Use this fund diligently as the slowdown may get extended if situation gets out of control and you may need longer support. 
  1. Invest your Surplus cash/ liquid assets in Equity- Going by the past track record, whenever markets have fallen drastically during crisis events such as 9/11, Financial meltdown in 2008, etc, they have always bounced back in the following year or 2 years and given double digit absolute returns. Going by this logic one may want to deploy their entire cash right away into the markets now to take advantage of the current low levels. This cash should not include your emergency fund as that is meant for a separate purpose enumerated above. Do not try to take a loan or borrow money to invest in stock markets just because you feel that you can make a killing as no one knows this time due to the uniqueness of the present crisis, how long its going to take for a real recovery. You can stagger your investments over a period of time till such time there is volatility rather than investing in one go. A simple way to check if you have surplus cash/ liquid assets is to check your asset allocation. Due to the fall in equities, your allocation to equity against debt would have come down, then move that difference from debt to equity. 


  2. Buy quality stocks/ Mutual fund schemes – There is a tendency to buy those stocks / funds which have fallen more than others but instead focus on quality bluechips which have low or no debt and figure among the bluest of bluechips in our country. There is safety in quality stocks and high-quality MF schemes. 


  1. Don’t Redeem your equity investments now and move to safer options – As the Sensex has already fallen by close to 36% from its high, there is a feeling from most investors that it will fall further and it makes sense to sell the equity funds/ Shares and move to FD or liquid funds to protect whatever is left. This is the silliest thing that you would ever do as no one knows when the markets will hit the bottom nor when they will start rising again. If your time horizon from todays levels are at least 2-3 years and above, then you need not worry as markets will recover once the pandemic comes under control in a couple of months and governments all over the world work on a war footing to provide sops and tax breaks to prop up the economies. Stay put right now and don’t sell your equity investments. 


  1. Stay calm and think before you Act – Fear creates anxiety and its common sense that one does not take rational decisions when in a state of fear or panic. Take your time to think about your needs as you are the best person who knows about your family’s requirements. Speak to your financial planner before you plan to take any action on your investments. 

The current situation does not have a precedent in the current generation’s public memory, hence its logical that we are all filled with fear of what’s next? But rest assured, this too shall pass. 


Steven Fernandes

Sebi Registered Investment Advisor

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