How to Adjust Your Investment Portfolio for the Post-COVID World?

The COVID-19 induced economic slowdown has hit everyone in a different extreme. Some have a lot of work to do, and some are finding it difficult to carry on with their household expenses. Although with treatments and safety measures, things seem to be on the path to recovery, it may be some time before we can call it normal again.

The pandemic has forced us to revisit our priorities and look after the many forgotten things. The investment portfolio is usually that one thing which you only occasionally look into. We have somewhat become less attentive towards where we spend and if our saving plans are in place. So, 

Manage Personal Budget

Your monthly budget could have many hidden nuggets you’ve forgotten about. The post-COVID-19 slowdown should alert you to tighten your purse and remove the unwanted drags on your purse. Follow these steps to reset your monthly budget:

• Check Your Credit Card Bills for a year
• Check the email accounts for various paid subscriptions
• Remove Unused Subscriptions, including the ones for online streaming services
  
• Remove subscriptions you haven’t used in a while, especially after the pandemic

With your monthly budget cleaned up, you need to take further steps to allocate the surplus money for more important causes. Remember, money paid is money gone. So, limit your spending to the things you consider valuable, even when it comes to learning.

Increase Emergency Fund

Emergency fund and planning is something easily neglected during good times. However, nothing is more useful than this pool of funds and resources during emergencies. With the recent pandemic, the size of your emergency fund should be about a year’s worth of your household and important expenses.

However, you don’t have to keep everything in cash or savings account. Here’s a list of assets which will count as your emergency fund:

• Saving Account Balance
  
• Bank or Post Office Fixed Deposits (except the 5-year tax-exempt fixed deposits)
  
• Credit Cards
  
• Life & Health Insurance Policies including Accidental death and disability insurance
  
• Any other savings or deposits which can be used as a collateral

Now, with these many assets being a part of your emergency fund it should be quite large, right? Not so much. You will only use most of these assets in case of really urgent fund requirements. So, for regular necessities, you only have two real sources of funds – savings and credit cards.

Thus, it makes sense to increase the size of these two assets, and preferably savings.

What Expenses to Count in Emergency Fund?

You should count all the expenses which you would want to continue when you are faced with a lack of income. This may include:

• Household budget
  
• Health & Life insurance premium
  
• Home Loan EMIs
  
• Regular healthcare expenses if any

Increase Allocation to Safe Assets

During good times with income security and everything, investing aggressively for long-term growth seems like a natural choice. However, during a pandemic or systemic situation like economic slowdown, recession, you need to switch more funds to safer investments.

Investing in gold has been a popular risk aversion measure in such situations worldwide. But usually, when the situation has set in, you will find that gold and similar assets have already become quite expensive.

With your regular investment you have two options:

1. You can reduce or stop allocating to risky assets like equity funds altogether & move this money to safe investments
2.  You can liquidate a part of risky investments and add the money to safe assets

But these two options will create two problems for you:

• First, if you are running SIPs you have to stop them, and similar actions
  
• Second, if you liquidate you may incur a tax liability based on the type of investment

However, if you have been using Unit Linked Insurance Plans (ULIPs) to invest in your long-term goals, you can avoid all this. ULIPs have multiple fund choices within the single plan, and you can switch your funds between these options anytime. Since these switches do not create a tax liability, you can avoid the liquidation woes as well.

Other Benefits of ULIP Schemes

ULIP plans provide you with great flexibility to plan, create and manage your portfolio. You can either decide the asset allocation between debt and equity manually from time to time or select an automated strategy.

Automated portfolio strategies in ULIP plans are quite useful as they can keep your portfolio risk steady in changing market situations.

For example, Auto Funds Rebalancing strategy offered by Promise4Growth Plus Plan of Canara HSBC Life ensures a fixed balance between equity and debt. You can decide the ratio at the inception and the plan will automatically move your money between the assets to keep the ratio.

This strategy ensures that your money is flowing out of equity when markets are rising and moving into the market when they are falling.

Since ULIP plans are life insurance plans, they also offer life cover benefits. One such benefit is the goal protection option which ensures that the family can receive the maturity value you intended even in case of your early death.

If you opt for this option in the plan, the insurer will make the due investments on your behalf in case of your death. Thus, the family not only receives a lump sum immediately upon the claim they will also receive the maturity value at the intended maturity.

The Pandemic Mantra - Plan, Strategize & Learn

The unexpected pandemic has given us an opportunity to sit at home and glance over things which we had been postponing earlier. For example, learning opportunities, planning and revisiting your life goals, and strategizing your return to the world when things grow normal.

In the meanwhile, use mask, wash hands and stay safe.