After almost two years, India is coming out of Covid. Slowly, but steadily, all the restrictions imposed during the past two years are being reverted. Offices are opening up quickly and you need to step out to see that India is out for business. What does this mean for your household finances and investments? Here are five things to focus on as you go back to the “old” normal.
Re-asses expenses: Cancelled vacations, closure of malls and restaurants, and working from home meant that average household savings went up in the last two years. While estimates vary, it is safe to assume that the average household had 15-20 per cent more discretionary savings than before. So, they turned to online investing and online shopping for niche brands — both areas that saw a jump in consumption. With the country going back to normal, all those expenses will come back. Therefore, it would be advisable to think about where you would want to dial down — your investments or your expenses?
Reset asset allocation: The bull market that ensued, post-short but deep correction in March 2020, has made an equity market believer out of all of us. We have seen that portfolios have become too equity-heavy in this bull run. By our estimate, the average investor is overweight equities to the tune of 15 per cent to where age and risk-appropriate asset allocation would advise them to be. If you are one of these investors, then be happy for your luck but do not expect markets to compound at 30 per cent+ year-over-year for long. The long-run return for equity markets is roughly inflation plus an equity risk premium of 5-6 per cent. So, take your equity winnings and allocate to debt and equity in the right proportion and follow your asset allocation diligently.
Get out while ahead trading: Online trading was the other big winner during the lockdown. It became the legal casino that everyone had access to. But long-term trading returns are not good for most traders. In a landmark study titled, Trading is injurious for your health, researchers found that households that trade the most make 11.6 per cent p.a. compared to index returns of 17.9 per cent p.a. If you can’t articulate your trading edge, it is better to get out and focus on your day job and turbo-charge your salary gains. Becoming the best at your day job will make you rich faster than any amount of day trading.
Buy adequate insurance cover: Think about this: One in every three or 33 per cent of Indians above the age of 30 years gets a lifestyle illness. As per a study by the Public Health Foundation of India, about 55 million Indians were pushed into poverty in a single year due to patient-care costs. And both the statistics are pre-Covid. As a country, we do not buy adequate health cover. Think of insurance as a pure cost that you bear to avoid worst-case outcomes. And while it has been said many times, do not mix insurance and investments.
Get out of debt: This one sounds too obvious, but you will be surprised by the number of queries we get of people with loans wanting to invest to make a quick buck rather than pay down their loans. If you got the short end of the Covid disruption and had to take a loan, focus on paying it before you start building any investments. The last two years also saw some creative packaging of loans — as buy now pay later, post-paid, or an overdraft line. A loan by any other name is still a loan and if you are not actively using these constructs then the best idea is to close them and clear your credit history.
While we would consider Covid already a past phase, what we need to also realise is that the world after remains unsettling. The turmoil in Europe and the overall changed global scenario will leave several trailing stresses on the global economy, markets, fuel prices, manufacturing and infrastructure spending, as well as on interest rates and therefore on; the opportunities of growth and overall jobs in the market. Investing wisely never hurts.
(Gaurav Rastogi is the Founder & CEO of Kuvera.in, a free direct mutual fund investing platform.)
