Investing during Covid-19 pandemic Do’s & Don’ts

As a first step towards protection, you must enhance your life as well as health insurance covers

Image used for representation. (Photo | PTI)

Your behaviour influences your investment decisions. It is tested the most when you are pushed against the wall. As you grapple with the physical trauma of sickness due to the pandemic, your financial life also gets affected. Losing your monthly income is the worst that can happen to you. However, if you still have an income, you have an even bigger responsibility. The way you protect your finances from the crisis will influence your financial security in the future. 

Your first actions
As a first step towards protection, you must look at your insurance policies. Enhance all your life insurance and health insurance covers. Your savings matter a lot, and every rupee you save has to be invested. As the pandemic continues to move in the second and third waves, you must prepare to tackle inflation as supply chains get disrupted.

amit bandre

This column will leave the specific investments to make to you and your financial advisor. However, there is a need to be aware of certain behavioural aspects as you plan to hold your ground. When things are in a state of flux, you must steer clear of obvious risks. Hang on to your savings and your ability to create a monthly surplus.

• Hearsay: Do not make any investment decision without ascertaining facts. Rumours fly thick and fast during a crisis. You do not have to act on every bit of information. Most Indians have money saved in fixed deposits, real estate and gold. About 2% of the population invests in the stock market. If you are a retail investor and invest with a reputed stockbroker, you need to read up. Your broker sends out research reports regularly. Analysts employed by your broker are qualified to assess the fundamentals of the economy or a company. They can give you a perspective. You do not have to follow every recommendation made. However, that is the most scientific way to follow. You must avoid investing just because you heard about a good tip from someone.
•  Hindsight bias: We tend to get over-confident about the outcome of a particular event due to past experiences. The quarterly financial performance data explains the performance of the economy and companies. ‘You could have done things differently’— is a realisation you get when you see the data. Companies are reporting profits much higher than estimates. That is mainly due to a low base in the previous year. Companies are expected to do even better in the June quarter.  However, you must understand that the nation had come to a standstill last year. Analysts are talking about the situation in March 2021 to be much better than March 2020. They are using the data on people and goods movement to justify investing in the stock market. It will help if you tread with caution. If you believe that businesses would do better in the quarters ahead, you must stay invested. However, if you are not sure, you need to take professional help and discuss the situation with your advisor. There is no harm in accepting that you do not know it all. 
•  Herd mentality: A lot of young people are finding their way to the stock market. Most brokers seeking digital customers have reported higher customer accounts by people in 18-25. Investing directly in the stock market is also advertised aggressively. However, you need to understand that just because someone you know made money in the stock market does not mean you would do so too. On the other hand, not investing in the stock market at all is also not a solution. You have to find a measured way to increase your exposure to the stock market. Stock market investing is risky. Your ability to take the risk is a function of your future income. Your equity exposure must grow if you have a rising income. If you have started with Systematic investment plans of mutual funds or systematic equity investing in shares of top companies, enhance your allocation to these assets whenever you get a pay hike. 

(The author is the editor-in-chief at www.moneyminute.in)