Transcript of the Podcast
Welcome to Episode 3 of the Little Saves podcast on Personal Finance.
A lot of things are going on in my life. I have a long list of Xbox games to finish playing. My investments are somewhat bouncing back to normal. I am redesigning the look and feel of littlesaves.com. Yup, it is going to become sexier!
Anyhow, I have a pretty heavy topic today which you will find helpful. My focus today will be on what to do when the value of your investments have dropped due to the COIVD-19 crisis.
I am sure you will have a number of questions:
- Should I sell?
- Should I buy more?
- Am I really screwed and when will things get back to normal
And so on! So I have done some research and reading and I will share with you what the experts say will be good for you.
So, What can one do if the value of their investments have dropped significantly during the corona crisis? Well this was my thoughts too! For I had invested about Rs.1,50,000 in the stock market and at the peak of the crisis my stocks were down by Rs.60,000. I had lost 40% of my investments. So what was I to do?
First and foremost, acknowledge that this is perfectly natural. When there is a bull, there will be a bear. You should not be in the business of trading. You are an investor and you should know that the stock market and related products are a risky bet. So losses are bound to happen now and then. Small losses mostly, but once in a while, big ones like that happenings now.
Next, acknowledge the fact that this too shall pass. Think of the days when everything is back to normal and the market is back in full form making you profits. Keep this rosy picture in mind and stop panicking. On the other hand, if that day never comes and the world is truly screwed, then your investments will become the least of your worries! You will have bigger existential things to worry about.
Remember the financial crisis from 10 years back due to the mess with housing bubbles, junk bonds, banks etc! Be thankful we are at a much better situation than that. At that time, people could go out, but did not have the money to spend. In the COVID crisis, most people do have money to spend, but are not allowed to go out. So on the brighter side, once the pandemic is over, expect a lot of your stocks to bounce back gradually as their sales picks up.
Now that you have dealt with that fact and acknowledged that, the next is to continue investing. If your income is still stable then do not stop investing. In fact, wait for an opportune moment and invest more to pick up good quality stocks at lower levels. You are in this for the long run, so unlike a day trader who is looking to make a quick buck, you can definitely wait out a few years. Continue with your SIPs, for any SIP investments you make now will get you a lot more units that will be valuable once the market is back to normal. In my case, as I am in the IT sector, I continue to get my salary, so all my usual investments continue as normal. Infact, I have put in some more money I got from my annual bonus as well into my investments as this is a great time to pick up discounted stocks and funds. The benefit of this will be seen a couple of years from now.
Be prepared for times like this. Have a rainy day fund for yourself. Similarly balance your risks accordingly. In my case, my Stocks lost Rs.60,000 at the peak, my loss as of now is around Rs.50,000. Rs.1,75,000 I had in Mutual Funds is down by 12,000. But all other investments I had are fine and doing good. All my alternate investments and passive income streams are going on as usual. So, assess your risk appetite and invest accordingly. If you have signed up for a high risk, high returns portfolio, then you should be prepared to face situations where your investment value has eroded.
What do you need during these tough times?
So far I told you a couple of things. So when investments have dropped down drastically,
- Do not panic and sell out. I have covered this in detail, but let me stress once again, do not panic. You are far smarter than that!
- Stop speculating on risky stocks and bets. Times like this means there is a lot more of rumours and speculations.
- Stop worrying about things not in your control. These tough times will pass and things will get back to normal. So don’t let people going mad and stocking up on toilet paper scare you.
- On the other hand what if you have lost your income, or had to take a pay cut or you are foreseeing you may loose your jobs. In these cases, try to build up your rainy day funds. Now may not be the best time for you to be investing. Try to have a couple of months worth of expenses in hand. This should help you continue till you find your next job and start earning a steady income.
- Stop logging into your account every other hour to see how your investments are doing. This is a pathetic habit that is going to drive you nuts and make your blood pressure go up. Simply, just monitor your investments once in two weeks or so. For the more you keep checking and see that there is a loss, the more that is going to drive you to do something you may regret later on.
You need to be calm, composed and patient. You need to see that there is hope. It is tough times like these that differentiate a tough person like you from someone who is selling their life savings due to panic right now!
And finally, let me close with two stanzas from a poem by Rudyard Kipling where a Father is giving advice to his son on what defines a man. Kipling says “If you can keep your head when all about you are losing theirs and blaming it on you, if you can trust yourself when all men doubt you, but make allowances for their doubting too….you’ll be a Man, my son!”. What he says is when people around you are going mad with panic, you need to stay calm and continue on. In our situation, the world might be selling like crazy due to panic, but you stay focused and continue with your investment plans. Trust yourself and the decisions you have made in the past. If you believe that you have chosen the right companies stocks or the right mutual funds and have all the reasons to believe it is the right decision, then stay patient and don’t sell out your life savings at a loss. You should have carefully analyzed and see when is the right time to exit an investment, when is an investment truly dead and will no longer recover and only then can you forsake that investment.
Good times will definitely come soon guys. Stay happy, please wash your hands regularly. Good bye!
IF by Rudyard Kipling If you can keep your head when all about you Are losing theirs and blaming it on you, If you can trust yourself when all men doubt you, But make allowance for their doubting too; If you can wait and not be tired by waiting, Or being lied about, don’t deal in lies, Or being hated, don’t give way to hating, And yet don’t look too good, nor talk too wise: If you can dream—and not make dreams your master; If you can think—and not make thoughts your aim; If you can meet with Triumph and Disaster And treat those two impostors just the same; If you can bear to hear the truth you’ve spoken Twisted by knaves to make a trap for fools, Or watch the things you gave your life to, broken, And stoop and build ’em up with worn-out tools: If you can make one heap of all your winnings And risk it on one turn of pitch-and-toss, And lose, and start again at your beginnings And never breathe a word about your loss; If you can force your heart and nerve and sinew To serve your turn long after they are gone, And so hold on when there is nothing in you Except the Will which says to them: ‘Hold on!’ If you can talk with crowds and keep your virtue, Or walk with Kings—nor lose the common touch, If neither foes nor loving friends can hurt you, If all men count with you, but none too much; If you can fill the unforgiving minute With sixty seconds’ worth of distance run, Yours is the Earth and everything that’s in it, And—which is more—you’ll be a Man, my son!