Are we in a slowdown or in a recession? Well, nobody has an answer to this question. When we see the media hysteria we keep wondering how ‘shriller’ can the voices become?
If you are in the middle portion of your life and surrounded by EMIs for your house, children’s education, car payments the situation will of course be scary. And we in the media business love to write about ‘negative things’ rather than positive things. The current state of the economy could be a worry. What should you do in such a slow down?
Your goals still stand:
If you are a scientific investor, most of your investments will be towards a specific goal. So unless you are sure that a particular goal is not important (and your spouse also feels the same way) do not touch the amounts set aside for a specific important goal. Early withdrawals from insurance and life insurance plans can be very expensive in terms of costs and taxes. Perhaps more importantly if the equity market looks up even a little your investments could recoup very well. Howsoever tempting, do not touch moneys to which you have given direction and momentum.
Many eggs in 3-4 baskets
All types of financial assets – life insurance, mutual funds, savings bank accounts, bank fixed deposits, provident fund schemes, government securities, equities, etc. all of them have a role in life. Each asset class (real estate, debt and equity) – perform differently in different economic climates. This is a time when you will hear statements like “Cash is King”, “Stay away from equities” – just ignore them. There is no permanently correct investment advice. Today there are people who can manipulate data for long periods of time and come up with ‘newsletters’ – ignoring most of it has its advantages too!
Track changes in your life
If you did your risk profiling 5 years back, do it again. Do not take on too much risk when the markets are rising and cut equity exposure when markets are down. Realise that ‘risk’ is largely counter intuitive. If you feel there was no risk, risk may be at its maximum and vice-versa! However if you are closer to some event for which you are saving, then you may still find it worthwhile to sell. In the last 5 years you have built some assets, you son has started working, your EMIs are over, your car loan is paid off…if all this has happened you may need less insurance. But if the goals are valid, the savings and investments are not enough to fill the gaps, keep your term life insurance valid and in force. If you are dependant on your company’s group insurance – life and medical – take an individual policy and keep it live. In case of a job loss it will be vital.
Think Long Term, not next quarter
Markets are cyclical! It is only the media which should be worried about quarterly results. You should not be so short term ‘ish’ in your thinking. So it should call for long periods of inaction. Warren Buffet says at Berkshire Hathway we think of this as a good habit. Markets fall, and then they go up – the broad index is wavy, ALWAYS over the long term. Rather than react to the market, it makes sense to create a carefully considered long-term strategy, especially when it comes to your long-term needs.
Frankly if you are saving money for your daughters post graduate education, and she is 3 years of age – how does it matter that the markets will take 6 months to recover? You should be worried about the corpus size only when your daughter is 3-4 years away from graduation.
Use the Knowledge of Your Advisor / Relationship Manager, if any!
If any – was meant for the advisor, not his knowledge! Unfortunately most life insurance companies and mutual funds chase only the ‘potential’ new customer with all kind of freebies. The existing advisors and investors are not helped at all – either in the form of guides or teaching aids. It is imperative that you learn and understand on your own – and know the art of wealth creation and for most of my clients’- wealth preservation!
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